The main difference lays in places used to store cash. In Velocity Banking, the money is stored in the home equity. In Infinite Banking, the money is stored in the cash value of the life insurance policy.
Velocity banking is a strategy where you use a line of credit as your primary account and use lump sums to pay off a loan, usually a mortgage. The idea behind this is that using a line of credit will help you use your cash flow and extra money to cover your expenses but also go toward paying off your mortgage.
Infinite banking is a concept that lets you become your own bank by leveraging the value of a dividend-paying permanent life insurance policy.
Velocity Banking Cons
Accessing a line of credit can lead to more debt. Essentially, it's a slippery slope. If you have an income change like a job loss due to the pandemic, this can go sideways quickly as you tap into the line of credit to fund your life… Having access to your equity can increase purchasing.
Numbers like that make Kwak and his brother Daniel perhaps the highest-profile proponents of a strategy sometimes called “velocity banking” or “debt acceleration.” The scheme is nothing new, but has caught fire on YouTube in recent years with dozens of tutorials published to the site, many receiving over 100,000 views.
Velocity Payment Systems is a payment processing company that is run by a subsidiary company of First American Payment Systems called Govolution, LLC. The company began in 1998 and specializes in electronic payments that meet and evolve with security standards.
In general, infinite banking works best when the person banking on themselves has extremely strong cash flow. Whole life insurance policies can cost several hundred dollars per month (between five to fifteen times as much as term life insurance policies).
For many people on a shoe string budget the infinite banking concept can be cost prohibitive. Although there is no set minimum monthly payment, in order to truly follow this concept and see its fruit you would need to try and put around 10% of your income into your policy, or at least $300 a month.
The infinite banking concept was formulated by Nelson Nash, a life insurance agent with 35 years' experience. Nash was born in Greene County, Georgia. He started in the forestry industry and followed that with long-term military service, before he joined in the life insurance industry.
It's easy — Zelle® is already available within Velocity Credit Union's mobile banking app and online banking!
Dave Ramsey advises his followers to avoid home equity loans and HELOCs. Although it might seem like home equity loans might make sense if homeowners are trying to quickly pay down credit card debt in their quest to become debt-free, he still does not recommend home equity debt.
A HELOC can be used to pay off a mortgage and free up significant cash while also reducing total interest charges. However, only a homeowner with a home worth a lot more than the balance on the mortgage can use a HELOC to pay off the mortgage all at once.
Since HELOCs sometimes have lower interest rates than mortgages, you could save money and potentially pay off your mortgage sooner. Even if the rates are similar, refinancing your first mortgage with a HELOC might still be the best choice for you.
A line of credit (LOC) is an account that lets you borrow money when you need it, up to a preset borrowing limit, by writing checks or using a bank card to make purchases or cash withdrawals. Available from many banks and credit unions, lines of credit are sometimes advertised as bank lines or personal lines of credit.
Velocity banking can work, but it requires mortgage payoff to be your primary focus. The more positive cash flow you have each month, the faster you can pay off your mortgage. But that assumes that you're putting all of your excess cash towards your mortgage, which means you can't use it for anything else.
The fixed-rate HELOC is considered a hybrid. It sits somewhere between a traditional HELOC and a home equity loan. So, you can withdraw the amount of money you need from your credit line and then convert it to a fixed interest rate.
Decreasing any additional charges to your line and increasing monthly payments are an effective strategy for paying off the outstanding balance in a shorter time period. Use this calculator to find out how long it will take to pay off your home equity loan or line of credit.