Paying Extra Into the Mortgage vs. Using a HELOC? Which is Better?
You may have recently been introduced to the idea of using a HELOC, a Home Equity Line of Credit, to pay off your mortgage faster. But you’re wondering ‘why is this better or any different than just sending in extra payments to your mortgage?’. But, is this the most optimal route to financial liberation? Let’s dive into the comparison of “Paying Extra versus HELOC,” specifically exploring the transformative power of the Home Equity Line of Credit (HELOC) strategy, also known as the Accelerated Banking method.
The Traditional Approach: Paying Extra on the Principal
The principle is straightforward – the more you pay, the faster you chip away at your mortgage. Additional payments go directly toward the principal, reducing the amount of interest accrued over time. On the surface, it seems like a sensible way to reach financial freedom sooner. However, it presents a few fundamental drawbacks.
The main problem with this approach lies in the rigidity of the mortgage contract. Money paid into the mortgage cannot be easily accessed again, thus your capital is locked away until the home is sold or refinanced. During financial emergencies, liquidity is crucial, but with this method, your hard-earned money is inaccessible.
The Accelerated Banking Method: Utilizing a HELOC
In contrast, the Accelerated Banking strategy (also known as Velocity Banking) utilizes a Home Equity Line of Credit. A HELOC is a revolving credit line secured against the equity in your home. With a HELOC, you pay down the principal rapidly, thereby saving a substantial amount in interest payments.
Unlike the “extra payments” approach, funds deposited into a HELOC remain accessible. This feature provides the flexibility to deal with emergencies or seize investment opportunities as they arise.
Unlocking the Power of Reduced Average Daily Balance with Accelerated Banking
Central to the Accelerated Banking strategy is a powerful, yet often overlooked concept: the reduction of the average daily balance. With a HELOC, interest is calculated based on this balance, rather than the principal. This unique feature can be maximized to great advantage through Accelerated Banking.
By depositing your entire income or savings into the HELOC, you immediately reduce the average daily balance, thereby lowering the interest you owe. Think of it as a strategic game where your money is working for you round the clock. Since every dollar in your HELOC counts against your debt every day, your money is constantly chipping away at the balance, regardless of how long it stays there.
Even if you have to withdraw money to pay for expenses, the time your income spent in the HELOC has already contributed to reducing the balance and, consequently, the interest. So, while the balance will fluctuate with deposits and withdrawals, the key is that it’s generally lower than it would be otherwise. This aspect of Accelerated Banking supercharges your ability to pay off your mortgage faster, while maintaining the flexibility and control that traditional methods lack.
With this strategy, you effectively turn your mortgage into a tool that can expedite your journey towards financial freedom. The Accelerated Banking method, thus, is not just about making smart payments; it’s about creating an intelligent system where every dollar works towards your financial liberation.
Remember, in the battle against your mortgage, it’s not just about how much you pay—it’s about how and where you keep your money before you pay it.
The Power of Flexibility and Control
By consolidating your income, expenses, and debt into one account, the Accelerated Banking strategy offers a holistic financial management system. The key advantage lies in its dynamic adaptability – the HELOC acts as a checking account where you deposit your income and from which you pay your expenses. The amount sitting in the HELOC directly reduces the principal balance, thus decreasing the interest charged.
Even more strikingly, the Accelerated Banking strategy allows you to control your financial future. With traditional mortgage payments, you’re bound to the bank’s schedule. With the HELOC, you dictate the pace. Want to be mortgage-free in 10 years? 7 years? The choice is yours.
Securing Your Financial Future
In conclusion, when comparing “Paying Extra versus HELOC,” it becomes evident that the Accelerated Banking method offers a compelling blend of speed, flexibility, and control. While making extra payments may provide some satisfaction, the HELOC strategy can offer a faster, more efficient route to financial freedom.
Whether you’re a new homeowner or years into your mortgage journey, it’s never too late to explore this innovative strategy. Remember, financial freedom isn’t merely about paying off debts; it’s about maintaining control over your money and having the ability to navigate life’s uncertainties with confidence.
If you’d like to learn more about this concept and the strategy, be sure to attend our FREE training webinar here: https://acceleratedbanking.com/free-virtual-class?sl=blog
Disclaimer: This article provides general information only. Every financial situation is unique. Please consult with a financial professional before implementing any strategy.