The 5 Disadvantages of Velocity Banking
The concept of velocity banking is not new to us. It is a way through with the mortgage repayment process is speeded up.
Although, many people advocate the benefits of using the velocity banking concept, still, there are some who are against it.
Let us look at the velocity banking concept from the later point of view.
Drawbacks of Velocity Banking
The disadvantages of velocity banking are as follows.
1. HELOC Rates Are Not Fixed
There are many banks that offer fixed rates of HELOC. On the other hand, it has been observed that some financial institutions don’t give a certain figure to the rates and keep them uncertain. This causes ambiguity in predicting the exact amount of interest you will be charged in the future.
2. Credit Score
Another drawback of using velocity banking is the credit score that is required for approval. The institutions offering HELOC demand a high credit score in order to be sure about their interest being returned on time. There are people who face trouble with their credit scores and have to do a lot to bring it up to match the HELOC demands.
3. Cash-flow Needs to be Free
The basis of velocity banking is whether you have free cash at hand or not. If you are tight on cash, you can’t use this for your benefit. In other words, velocity banking is good for people who have control of their spending habits and are good at saving money.
4. The Problem With Appraised Value
The HELOC providers often conduct appraisals to determine the current worth of the property. After the appraisal, they compare the value with the mortgage balance. If for any reason the current market value turns out to be lower than the appraised value, you owe more than what the property value is. This results in you not getting what you came in for.
5. Used in Ponzi Schemes
The only thing that scares people off from velocity banking is its use in MLM schemes. The scammers look for people who are willing to pay off their mortgage and try to sell you training referral programs. Remember, the concept of velocity banking is easy to learn and you don’t have to pay someone to get into it.
Who Benefits the Most from Velocity Banking?
Since you are required to pay more in interest payments as compared to people who have easy access to cash, things will not turn out to be good for you if you for velocity banking. It surely is a tool to pay off your mortgage as early as possible but it requires free cash in hand.
If you are running low on finances, then velocity banking is not for you. The idea is to save move to create liquidity and then go for a HELOC. Similarly, keeping a high credit score is another major binding of velocity banking.