💸🏠 Crush $150k Debt Fast: Real HELOC Case Study in Velocity Banking!
Denzel Rodriguez walks through a real case study using a HELOC from First Savings Bank to pay off $150k in debt faster through velocity banking. He breaks down the interest rates, cash flow moves, and financial planning tactics that made it work.
Hello and welcome everyone. Today we're going to be looking at the Velocity Banking case study using a first lien home equity line of credit with First Savings Bank. Okay. This specific first Lien HELOC is designed differently than most of your first lien helocs that you find out there in the marketplace. There are currently two products in the marketplace that I know of that operate how this, this product does first link Heloc with First Savings bank and the all in one loan that you can get with CMG Financial, or if you go directly to a bank that provides that product, that's the only place you're going to find these two products that are literally, it's a home equity line of credit, it's a mortgage loan and it's a checking account all in one, right? All together. So what that means is you're able to have all of your paycheck, your income get deposited automatically and directly into the debt amount that's owed, right? So let's just say you have a first lien HELOC that you transition from a traditional 30 year fixed amortized mortgage. And let's say you had 300,000 owed on it and the value of your house is 600 grand. So maybe you get a $450,000 line of credit, right? So now you have a $450,000 line of Credit, let's say, and it's a first, first lien product, but you owe 300 grand on it. So that's the loan part, the 300 grand that's owed. The line of credit part is the 450. So 450,000 is your credit line of which you have 150,000 at your disposal, 300,000 of which is currently being used by that previous debt that you moved over into the first lien, right? And then there's the checking account function or feature where you can pay bills out of this thing. You can deposit, deposit your paychecks. And so what happens is you'll have this $300,000 balance owed, right? However much you owe on your first lien, that's how much you owe. Then you have a checking account function. You get a checking account routing number, right? And you can send your paychecks to this account. You can have, you'd set up autopay, you can do everything out of this account. But here's what happens at the end of every day, right? 12am hits, all that money gets moved automatically into the first lien HELOC loan itself. So, so the money is automatically getting deposited in right and then, if I'm saying this correctly, your bills. So let me, let me, because now I have to correct myself here. When you have your checking account, your income, right, lands into that account. It technically is going into this balance owed. So let's say you get a $5,000 check. So now your balance will be 295k. Every time money goes in, it's principal first boom brings the balance down. Right now you have bills to pay. So let's just say over the next three to five days you've got $2,000 worth of bills to pay for and it's going to come out over a three day period. So on day one, 500 bucks comes out, then another 500 and then a thousand, right? So each day and you have bills due. Let's say today, 500 bucks is going to come out of that account. You're going to be technically negative $500 in your checking account. There's no money there, right? There's no money there. At 12am money is going to sweep. They call it a sweep function or sweep feature. $500 coming out of the line and it's going to bring your checking account balance to, to zero. So what this, does it truly maximize every single penny every single day, every single dollar is staying in the HELOC for as long as humanly possible.
Right?
And there's no overdraft fees when you have this ability. So that's what we're going to be looking at here in this case study. Velocity banking with the first lean HELOC with First Savings Bank. Let's go ahead and jump right into the numbers here, starting with four major numbers on the board. Income is $12,749.05. Expenses are $8,148.48. Total debt 151,269, leaving us with a cash flow of $4,600.57. Here is our first lien home equity line of credit with First Savings Bank. 489,000 is the credit limit. We currently owe 82,800 on the line and the interest rate is 6.56%. And that is a fixed interest rate that we currently have. And I believe that this rate was locked in for either three years or five years. I forget. But I can tell you, for those of you who have been doing Velocity banking in 2021 and 2022, I believe it was between 2021 and 2022 is when I first discovered this product. The first lien HELOC with First Savings bank prior to that, I've always known about the all in one loan. All in one loan. I learned about in like 2019 or 2020, started making content about that. So for those of you who already had this First Lien HELOC product in place, either with First Savings bank or all in One Loan, I'm pretty sure you're really happy right now, right? Because of how much damage you were able to do. And, and then now that interest rates have skyrocketed, even though your HELOC may have gone up, your cost of borrowing is still dramatically low. So a lot of you are really happy in that regard. Also in 2022, for those of you who obtained a first lien HELOC with First Savings bank and you locked in your rate, right? You went with the fixed rate option either three years or five years. Oftentimes in my videos I was really encouraging people to consider the three year one, which I think you locked in the rate of like 5.9% or something like that, or maybe six and a half because it gradually went up throughout the year as I was putting the content out. I'm pretty sure right now you're happy. So go ahead and comment below if you have a first lien HELOC with First Savings bank and in 2022 or 2021, you went ahead and took my guidance and locked in that lower rate. Because now in 2023, people who are considering this product, first lien HELOC or all in one loan are looking at rates of about 9 and a half percent or 8 and a half percent. Right. And then to lock in a fixed rate, it's only like maybe a point below that.
Right.
So this is, it has become less attractive in terms of that, that high rate. And you also have to factor in the high closing costs with an all in one loan or First Lien heloc. You have to make sure we're running good math to determine whether or not this product is right for you. It may not be. You may want to just consider getting a second Lien heloc, no closing costs. Yeah, you still might be at a higher rate, say 9%, but you avoided all that closing costs.
Right.
And you might have gotten an introductory rate for a year or six months, whatever that may be. So you may want to consider that over this particular product and in this particular environment. Right now, I'm not saying not to get it. I still have clients that are obtaining first lien HELOCs today and all in one loan products today in 2023. And I have found that it makes more sense with people with high income. 10, 15 + thousand a month coming in and you're cash flowing 4, 5, 6 grand + per month, you're able to overcome that. High rate and high closing costs, you're able to overcome that. You're able to make sense of it because the amount of damage that you're going to be able to do in a short period of time, having a really large line of credit to work with. So in that case, that's what I have found it's made the most sense for people with making five grand, seven grand, eight grand, only cash flowing. A thousand, two thousand, three thousand. You're not able to bring a nine and a half percent rate down to less than two or even less than four. A lot of you are not able to do that. But when you have high income, you can easily do that. And then when we compare to whatever debts we're trying to pay off, we're able to make the math make sense, we map out the strategy and we're clear. So I want to give you that guidance that it's, it's changing. The product has changed in terms of its interest rate. The function is still the same, but the interest rate has gone up quite a bit. So you and I both know as velocity banking practitioners, those have been practicing, we run the numbers. We're not emotionally tied to any bank or any product. So we will move banks, we will move products if need be, to continue to practice velocity banking. Or we'll straight up say, hey, in this current environment, velocity banking doesn't make sense. We're just going to go back to making extra payments.
Right.
So we want to be abundantly clear with that. Let's take it right back to the board here. So recap. Four major numbers. Cash flow first lien HELOC 489, 6.56%. Locked in rate in 2023. That's very attractive in this marketplace right now when the prime rate is 8%. Okay, we owe 82,800. Here are the client's goals. They want to become a millionaire, want to travel the world, leave legacy for the kids. Two kids. We have husband and wife. So I'm dealing with and I'm in communication with husband, 58 years old, must help kids pay off student loans. So when that time comes, wants to help, you know, finance their student loans. Instead of them borrowing from the institutions, they can borrow from dad and then maybe he can set up a repayment plan where kids pay him back and he's using the HELOC to finance that. Or maybe he just flats out paid altogether.
Right?
One or the other. And then invest in more real estate. So this is not in any particular order, but these are just the goals that he laid out he wants to accomplish. So with that being said, we're starting velocity banking. We just got the first lien. Heloc or they've, they've. I'm sorry, they've had it for a little while. So they've been doing the concept. They locked in the rate. They're on a fixed rate option right now. Let's calculate 6.5% on 82,800. What's our borrowing cost? Let's figure out that number and let's figure out how much we can cut this rate. Now, if you're looking over here on the right side of the board, I already gave you the answer after. We're looking at one year of velocity banking. In one year, our net borrowing cost is going to be just under 3.25%.
Right?
Our total cost is going to be 2,680. 06 is our average roughly cost of borrowing in the first year of velocity banking. On this side, I'm going to break down the math, show you exactly how I get these numbers, how I get these estimates. These are not going to be exact. I'm overestimating, leaving room for error. Okay, so here we go. The $82,000 debt has produced a monthly payment of $540. That's principal and interest. 540. If you times 82,800, you times it by 6.56%. You should get this number, 5431. 68. Divide that by 365. Our daily borrowing cost is $14.88. Here's the primary difference between this type of a heloc and other HELOCs in the marketplace. That $14.88 at the end of one day, with most other HELOCs, that $14.88 is going to get charged to the balance, right? So when that person goes to make a payment in advance, they'll see part of that payment go towards interest, the rest towards principal. Some banks may give you the option, right? You may be given the option where you can have your payments go directly to principal. And if you have a HELOC like that, then your HELOC functions like this. Heloc, Right. Similar. Okay. Some may not give you that option. In this case, that $14.88 is going to be sitting off to the Side and it's only going to be extracted on the due date. So it'll tally it up over the, over that whole cycle, that statement cycle and then you'll get charged what that total cost is. All right, so that's what's happening here. That's how we get our numbers. 82,800 times the rate. Boom. Then divide by 365. Boom. 1488. Now doing velocity banking, we dump our income in. So in this case, there's a lot of automation here. They don't have to manually move their paycheck over. It automatically goes right into the line. So that means when they get paid, they don't have to remind themselves to do that. It's another feature and benefit of this particular product here is automation in velocity banking. They've automated bill pay, they've automated direct deposits via their income. They're automating expenses coming out. That's all automated. It's. You're being extremely efficient with this type of a tool in regards to velocity banking concepts. That's what makes this very attractive to consider getting. So minus income, the balance goes down to 70,000. $70,050.95. Right. So minus that income number, that's what you should get, the expenses. Look what I wrote. $8,061.12. Why did I write that? Because I wrote that the expenses over here were actually 8148. 48, right. So 80006112 is the way I got that number. 540 is the monthly payment. If you were to divide this number by 12, you'll get this 452.64. So they're actually paying in interest. If we do nothing but just pay the monthly payment of 540, $452.64 would have gone to interest only $87.36 or went to principal. So what you have to understand is this 540 payment is in this number. 8148. 48. So that would mean that technically you would need to do 8148 minus the 540. That's what's actually coming out of the HELOC to pay other expenses, other bills.
Right.
So what I did here is, okay, of that 540 we know majority of that is going to interest. I'm going to. Minus the 8736 to factor in that that money stood in the line of credit. So technically only $8061.12 went out.
Right.
The rest that interest 452.64, which is already included in this number. So what I'm showing is income going in, expenses coming out 8061 12. So just minus $87.36. You should get that number at the end of one month in May 2023. Here's where the balance should end off around 6 78,100 and 1207. What I do from here is I take this number 78, the $70,000 number and the $82,000 number. Times it by 6.5%. Get that number, divide by 365, you get this number, you're gonna get three separate numbers. Add those three numbers up together, divide by three, you get your average daily borrowing cost times that number by 30 days. You, you should get this number right here. $414.99. From there, we have Cashback Rewards. We're going to be running bills through a credit card. Roughly 3,000 bucks is what I estimated, although he could probably do more than that. So off of a 2% cashback rewards amount, we're looking at about $60 per month every single month. That helps offset our borrowing costs, which means 60 less dollars came out of the HELOC. So I did not account for that, but I, I will continue to only account for the difference of interest each and every month.
Right.
So here's what happens. If you did 452.64 -414.99, you're going to get a savings $37.65 of 543,765 plus 8,736 went to principal. That's the only thing I'm factoring in. Over the next year, I'm not accounting for an additional $60 on average in Cashback Rewards. That, that did not leave the heloc.
Right.
Because the Cashback Rewards are going to get applied to the credit card statement, which means when the credit card is due and it automatically comes out in HELOC, it's $60 less coming out, which that affects your interest costs, makes it lower. So that's my little room for error there, little estimation. So these are overestimated costs. When it's all said and done, they could probably bring their borrowing costs maybe even less than 3.25. But this is still a really good result. In 2023, our interest cost is 3.25. While everyone else is in near double digits, what they're paying in interest. This is extremely attractive and we're talking a very large line of credit at our disposal to either invest and it only costs us 3.25 or pay off debt and it only cost us 3.25.
Right.
Over one year period. So that's the best way to understand your borrowing costs. So those are the elements, right? So the ending balance, 78,000 in the first month of Velocity banking, we went from 452 down to 414.
Right.
So then what I did the following month is I, I showed that 806112 minus 3765. You should get this number, 8023 47. Income stays the same. So minus income, here's what the balance goes down to, plus expenses. Here's what it goes up to. Starting balance, lowest balance, ending balance. There's always going to be those three numbers to help you determine what your estimated borrowing costs will be. So we end off around 73,801, 48. Look what happens. $391.93 from 414.99. That's a $23.06 difference in the month of June. And notice how the number is, you know, around the same. 23.42 in July. 368. Balance goes down to 69. 444.77. Look how I minused it. Expenses 8041. So that's what I'm going to continue doing all throughout the year. You're going to see how the interest cost continuously drops. So if we look at a 12 month period from May 2023 to April 2024, so we got 12 months. Right, because you have to count the month of May. That's why we have 12. So 12 whole months. By April, our borrowing cost is 147.08. So in all it went all the way from 452 down to 147. If you were to add these numbers that are in the parentheses, add them all up, you should get this number, $3,406. Your offset amount to 720. That's money you get back each and every month running bills through a credit card. Minus 720. That helps offset your cost. You're technically still paying that number, but you got 720 back. So your net was 2006. 80 06, which is a 3.25% borrowing cost. Not bad at all. This is doing velocity banking on the tool itself for one year. Okay, that's what just happened here. You could buy your rate, get a number, Then divide by 365. See what your daily Borrowing cost is right. Then minus your income, see what the number goes down to, times it by your rate, divide by 365, get another number, do it again, add expenses, see what your ending balance is, times that by your interest rate, divide by 365. Boom, you get your numbers. This takes you 15, 20 minutes, right? If you invest in yourself, you run your numbers. You're not going to disappoint yourself. You don't have to guess, you don't have to be in la la land willy nilly trying to figure things out. Run the numbers. Take 60 minutes with you and your spouse. Sit down, run the darn numbers, right? These videos are not little five minute clips for you to get excited and motivated. The whole point of these videos being 30, 45 minutes, almost an hour long, is so that you could have me playing in the background. And you sit with wife, you sit with husband, right? You sit with your spouse, you sit with the family. Run the numbers. As I'm running the numbers on someone's case study, 65, get another number, do it again, add expenses, see what your ending balance is right here, you do it. Do it with me, pause the video, right? Okay, he said that. Okay, boom, he said that. Okay, boom, he said that. Put it all together and then you're going to see where you're at. And this second part, what I'm going to introduce now is talking about certain things that we can do to add some jet fuel to this strategy here, right? So here are the debts that they have in addition to what's owed on The HELOC itself, 82,800 was owed initially in the month of May 2023. We have these other debts outside of the first lien. HELOC 7220 owed on a whole life insurance policy. They're currently paying $500 a month back to pay off that loan. And the loan interest rate is 5.25%. So their cost is 5.25 on the HELOC. Even though it's 6.56, we're actually paying 3.25. So one thing that this client can do is they can reroute this $500 and they can reroute it to their HELOC because that $500 is going to work harder for them in here than it is all by itself to pay that 7220 down right now. The cool thing about this type of a loan with whole life insurance product is you don't have to make a payment, you can just pay the interest on the anniversary date when it's due. So what we can do again is reroute the five. Okay. Into the first lien heloc and then we could pay the policy off when we want.
Right.
That's one move. We've got a student loan, 7393, 3.25%, 150 bucks. I probably would leave that alone.
Right.
That's at a 3.25. My net borrowing cost is 3.25. Not much of a gain there. It's. It's not feasible.
Right.
53,856 owed 0%, 5, 28, 16. We're going to ignore that. It would not make sense for me to move 0 to 6.56. 6.56 becomes 3.25. That's a cost. You don't gain anything from that. Yeah, you get 528, but it costs you to get there. So that wouldn't make sense.
Right.
And now you've just exposed yourself to 53,008, 56 on top of the 82,800. We're totally messing up what we can offset. That's not going to really be pretty. Finally, this isn't a debt. But they're funding their whole life insurance policy.
Right?
They're funding it $850.10 a month on a monthly basis. What most of you may not know, maybe your agent didn't explain it to you. So I'm going to explain it to you. When you pay your insurance policy, your whole life insurance policy on a monthly basis, you're getting charged additional fees.
Right.
That you can avoid. But you might be saying, well, I don't know how to pay my policy in full.
Right.
For this particular individual here, they're paying in. When you take 85010 and you times it by 12 payments, you should get 10,201 and 20 cents. So like, well, how do I come up with the 10 all at once? Boom. Your first lien heloc. So if we can show the math. So what this client has to do for me, they haven't done it yet, but I'll get it soon. Where? They're going to find out. They have to reach out to their agent or look on the policy contract and we're going to see how much does it cost me additional to pay 850, 10 per month for 12 months versus paying all up front in one year. Let's just say there's a $350 savings.
Right.
So you would be saving $350 by just paying the Policy in full. In addition to the savings, their rate of return in the policy is going to be higher because now they're earning money all upfront throughout the whole year as opposed to month by month. So that's going to be a difference. Maybe there's a couple dollar difference there, I don't know, but there's a difference. So I got that plus the 350 in savings, let's say, and to move $10,000 over here at 6.56%, which becomes 3.25, which again means that they now have $850.10 back in their pocket. So they made a chunk, paid the policy in full, but now their expenses drop by $850.10. So when we run the math, we could let me just, you know, assume here, and this is likely the case is most of the time likely the case where the amount of interest I pay over here is less than the fees. So maybe the interest was 150 bucks, maybe 200. So it cost me 200 over here, but I saved 350. Do you see the net positive gain there? $150 plus $850 every single month after making that chunk, which means that the line of credit is going to get paid off much faster. So now we're talking 850 back in here plus 500 back in here. So you can imagine with the current cash flow and income and expenses, we were able to bring 6.56 down to 3.25. If I were to add 508 50, I could definitely make the argument that 3.25 just might become 2 or 1.8. I could probably cut it down a little bit more. Probably another whole percentage point. I'd be willing to bet at least 2.25. That makes a huge difference in your interest cost and it creates your velocity of money flow that much better. And this is an example of practicing velocity banking and the infinite banking concept together where they're max funding their policies. So they're saving money through their debt tool each and every year, saving hundreds of dollars on the fees because they're paid up front. And then instead of them sending $500 separately to pay off that loan at 5.25, we work towards paying down this first because there's more, more interest to be saved over here than over here. And then move this, say into there, because 5.25 can become 3.25. 3.25 can become 2.25.
Right.
So we cut that cost in half. Not bad. So we paid off their loan in the policy. That means now they have more cash value available to maybe borrow against that and go make an investment with that produces more cash flow. And whatever we pay in interest is getting offset by, by the gains of the internal rate of return itself, right? There's a little bit of an offset there, maybe not 100% offset, but it'll be somewhat of an offset. Plus whatever the cash flow returns are, that's going to create that true offset and even a positive net gain in cash flow.
Right.
And again, it improves the entire flow. So I say these things to make you think about how can I better my flow of money, how can I increase my velocity of money? The golden rule of dumping all your income into the tool and taking money out, taking expenses out and cash flow staying in, that is always going to benefit you really, really well. Especially when there's a debt owed on the tool itself to begin with. So that's how it was in this case.
Right?
And after one whole year, showed the math. Those are the numbers. Those are the rules. Hope you enjoyed this video. I know I do. I love this kind of stuff. This, this, you know, drives me, drives my passion, everything when it comes to getting clear numbers, clarity, accurate, you know, down to the penny type numbers, that's what you need to do for yourself. You need to know your numbers. Very, very important. You want to succeed, you want to become a millionaire, you want to travel the world, you want to leave a legacy for your kids, you want to help your kids pay off your student loans. You want to invest in more real estate, you want to create more cash flow and tax free income. You want all these different things. Know your numbers. Start there. If you want to develop a skill in 2023, now is the time to improve your financial literacy, your financial awareness, right? To know more about you. Get to know your numbers. Because whether you like it or not, 90 plus percent of your decisions is based off money. Either lack of or abundance. Which is why you might splurge or you might say no to something because lack of resources, right? So you're constantly making good and bad decisions with your money. My goal is to help you make more, better decisions with your money. Less bad decisions with your money. That's going to create a net positive gain in your net worth and your cash flow overall. Lovely. My name is Denzel Rodriguez, personal finance geek of the 21st century. Hope you enjoyed this video. Action steps coming out of this would be to click the links below. You can sign up for some coaching on my end Join any one of my programs. Join finance geek ministry, where you can dive a little bit more, get involved in a community, maybe even collaborate with some people. That's an opportunity. Maybe you might want to team up with me in business. Maybe you might want to become a coach, consultant, strategist, Velocity banking practitioner. You want to teach your whole neighborhood, your co workers, your family, your friends, everyone. I got program for that can help you, help you become a financial coach. Velocity banking practitioner without certifications saves you a ton of money. Instead of going that route, spending thousands of dollars on certifications, I just gave you all the information for free.
Boom.
Do what you want with it. Have fun, have a blast. My bet is that you take this. For those that are getting this for free, you take this, you multiply your wealth, and then maybe you sprinkle the infield a little bit.
You.
You spread the wealth you give back. Maybe to me, maybe to people that you may know. I'm asking you to pay it forward. Maybe we collaborate, maybe we do business together at some point in time. So I'm thinking much bigger, right? I don't need to make all the money right now on, on coaching and whatnot. I'm thinking way, way bigger. I'm thinking, look, this guy's making 12,000amonth. Or maybe you're watching this making six grand. I'm thinking, how do this person operate when they're making 120,000amonth? How will this person operate when they're making 60,000amonth? When there's just so much abundance, like, you know, whatever there is to work with me? They're like, there you go, there you go. Like, those are the type of people I want to work with. Where you're not even blinking an eye to sign up for coaching and work with me and buy any one of my programs. You might just buy it even if you don't need it. You're like, here, I want to buy it and give it to someone. That's cool too. You can do that. Communicate with me, email me directly again, God bless. Have a wonderful day. We'll be talking soon.
