Introduction
If you're familiar with the concept of Velocity Banking, you know that using a Home Equity Line of Credit (HELOC) can be an effective strategy to pay off your mortgage faster. However, not all HELOCs are created equal, and choosing the wrong one can lead to unnecessary costs and complications. In this blog, we'll explore four crucial things to avoid when selecting a HELOC to ensure it works effectively with the Velocity Banking strategy.

1. Avoid HELOCs with Delayed Transfers

One of the most critical features of a HELOC is the ability to transfer funds quickly between your HELOC and your checking account. Some HELOCs, particularly those offered by non-bank lenders, may have significant delays in processing transfers. These delays can be as long as 3 to 7 days, which can be problematic when you need quick access to your funds or when you’re making principal payments.

Why This Matters:
Delays in transfers mean that your principal balance isn't reduced immediately, which can lead to higher interest costs.
Immediate access to your funds is essential for managing cash flow effectively within the Velocity Banking strategy.

What to Look For:
Choose a HELOC that allows for instantaneous or same-day transfers between your HELOC and your checking account, ideally offered by the same bank.

2. Avoid HELOCs with Draw Limits

Some banks impose limits on how many times you can draw funds from your HELOC or impose fees for exceeding a certain number of draws. This can be highly restrictive, especially if you rely on frequent transactions to manage your finances effectively.

Why This Matters:
Velocity Banking often involves multiple transactions each month. Draw limits can hinder your ability to use the HELOC as intended.
Additional fees for exceeding draw limits can add up quickly, reducing the overall savings you could achieve with the Velocity Banking strategy.

What to Look For:
Opt for a HELOC with no draw limits or a high enough limit that won’t impede your ability to access funds as needed.

3. Avoid HELOCs Without Online Access

In today’s digital age, online access to your financial accounts is crucial. Some HELOCs, especially those from smaller or less modern banks, may not offer online banking features. This lack of online access can make it cumbersome to manage your HELOC, especially if you need to visit a physical branch for every transaction.

Why This Matters:
Without online access, managing your HELOC becomes time-consuming and inconvenient.
The inability to make transfers or monitor your balance online can lead to delays and errors in managing your finances.

What to Look For:
Ensure your HELOC account offers robust online banking features, allowing you to make transfers, view balances, and manage your account from anywhere.

4. Avoid Confusing a HELOC with a Home Equity Loan

It's crucial to distinguish between a HELOC and a Home Equity Loan. While they may sound similar, they function very differently. A HELOC is a revolving line of credit that you can borrow from as needed, while a Home Equity Loan is a fixed-term loan with a lump sum disbursement. For the Velocity Banking strategy, a HELOC is the appropriate tool, not a Home Equity Loan.

Why This Matters:
A Home Equity Loan does not offer the flexibility needed for Velocity Banking.
Mistaking one for the other can lead to committing to a product that doesn’t meet your financial strategy needs.

What to Look For:
​Always verify that you are applying for a Home Equity Line of Credit (HELOC) and not a Home Equity Loan.

Conclusion
​Choosing the right HELOC is crucial to the success of your Velocity Banking strategy. By avoiding HELOCs with delayed transfers, draw limits, lack of online access, and ensuring you choose a HELOC rather than a Home Equity Loan, you can optimize your strategy and achieve financial freedom more efficiently.
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