A Smarter Way To Own Your Home Sooner Without Extra Debt

By Ressie Krabacher

As a local resident and top performing REALTOR® in Chicago, Ressie Krabacher is relentlessly focused on helping her clients move forward. She serves as an advocate and advisor for buying or selling, overseeing relocation, or adding home ownership to their financial goals.

If you’re a homeowner or planning to become one, there’s a financial strategy you should consider: velocity banking. While it’s not yet mainstream, it has the potential to help you pay off your mortgage in a fraction of the time. In my latest conversation, Andy Gaston from Nexa Mortgage explains what velocity banking is and how it can benefit you when buying a home.

What is Velocity Banking? Velocity banking is a method of paying off your mortgage in five to seven years instead of the typical 30. It uses a home equity line of credit (HELOC) instead of relying solely on your traditional mortgage.

What most people don’t realize is that when you make a mortgage payment, the majority goes toward interest, especially in the early years. In fact, almost all your monthly payments during the first year are spent on interest, not on reducing your actual loan balance. By year five, you’re still primarily paying interest.

With a HELOC, it’s the opposite. You pay simple interest, allowing a larger portion of your payments to go toward the principal. This can significantly shorten the life of your loan and reduce the total interest you pay.

Who can use this strategy? This approach is ideal for people who already own a home and have at least some equity. Many lenders offer HELOCs at 80% to 85% combined loan-to-value (CLTV), but Andy works with lenders who can provide up to 95% CLTV.

Generally, homeowners with a credit score of 680 or above and at least 5% equity are strong candidates. For instance, if your home is appraised at $500,000 and you owe $450,000 or less, you might qualify.

Isn’t the interest rate on a HELOC higher? At first glance, yes. A HELOC might have a 9% interest rate, significantly higher than a 5% mortgage rate. However, this is where it gets interesting.

Mortgage rates are amortized, which means the interest is front-loaded. Over 30 years, a 5% mortgage can end up costing you nearly double the original loan amount. In contrast, a 9% HELOC with simple interest doesn’t accumulate as much interest over time, especially if you’re aggressively paying it down.

Andy points out that a 9% HELOC can often be cheaper over time than a 5% mortgage rate. It’s not an apples-to-apples comparison, making it essential to understand the structure rather than just the numbers.

Who benefits most from this? Velocity banking is beneficial for anyone looking to build wealth through real estate, reduce debt more quickly, or pass on property without a mortgage burden. Andy has clients using this strategy to acquire multiple properties each year, freeing them from long-term debt.

And that matters a lot because instead of leaving your kids with mortgage debt, you could pass along homes that are fully paid off and even create income streams from rental properties paid off in a few short years.

Velocity banking isn’t for everyone, and it’s definitely not a “set it and forget it” solution. But if you’re serious about financial efficiency, it’s worth having a one-on-one consultation with Andy Gaston. Contact him at (773) 454-2466 or agaston@nexamortgage.com. He’ll give you personalized guidance and help you run your numbers and see if this strategy makes sense for you.

And as always, if you need help buying, selling, or investing, contact me at (773) 965-4100 or ressie@kw.com. As always, I’m here to serve.