Velocity Banking vs Infinite Banking

Velocity Banking vs Infinite Banking https://themoneyadvantage.com/velocity-banking-vs-infinite-banking/

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Maybe you're weighing velocity banking versus infinite banking, trying to figure out what are the differences and which one should I use?

Now both of these concepts are something that sounds very similar, but there are key differences that you need to understand.

Proponents of velocity banking will use a line of credit or a HELOC to be able to pay down a mortgage as quickly as possible. Some say within five to seven years, some closer to maybe the ten year mark.

What's happening inside of a velocity banking strategy is you have a home equity line of credit that you are paying down instead of a mortgage.

The major perk of what's happening inside of the velocity banking strategy is that you're paying off debt sooner, which seems like your saving interest and maximizing control.

You're putting all your cash into the line of credit, which you use for emergencies and opportunities.

Now that can sound very similar to infinite banking.

Let me share with you what infinite banking is just in case you're not familiar.

Infinite banking is a strategy of using a specially designed whole life insurance policy or contract that is with a mutual company that pays dividends.

This is a policy specifically designed to pay in your premiums and also have a growing cash value that's as high as possible in the early years and continues to grow.

Similarly, both of them use the word banking.

They're both ideas of being able to recede from or separate from the typical banking institution where the bank is in control of your cash, and instead take over the banking function for yourself.

Both strategies say that they are about maximizing your control.

I want to give you a side by side comparison between what's actually happening in the velocity banking strategy versus the infinite banking strategy so that you can make decisions for yourself.

First, let me say that we are not anti-HELOC. In fact, we've even helped clients to be able to implement using a HELOC specifically for investing purposes. However, we are not proponents of paying off your house as fast as possible, because there are so many things that cause you to lose control when you do that.

1) What's happening with my extra cash. Now, if I have, say, $5,000 worth of income each month and $3,000 worth of expenses, my gap or cash flow is $2,000 per month. What am I doing with that extra cash?

Velocity banking: you are putting that extra cash into your HELOC or your line of credit.

Infinite Banking: Your cash is going to premiums on a life insurance policy.

Where is the balance of my cash?

Velocity Banking: Balance is in home equity.

Infinite Banking: Balance is in the cash value of the life insurance policy.

How liquid is equity in velocity banking versus the cash value in my life insurance policy?

Velocity Banking: You should have liquidity inside of a HELOC as long as your terms are not suspended or frozen or reduced. Historically, back in 2008, many lines of credit were locked or frozen or reduced. There's a clause within HELOC's that allows the bank to change the terms if you're facing a job change or job loss or income loss, or if your house value is significantly reduced, as in 2008. The other challenge is that within a HELOC, there's two different portions or chunks of time. The first portion is called the draw period and after that you have a repayment period. However, as soon as the HELOC converts into the repayment period, you no longer have that accessibility. It's not a guarantee that it will be liquid for you.

Infinite Banking: Contractual guarantees ensure you have access to your cash value.

Does my cash earn a return?

Velocity Banking: Lines of Credit and home equity do not earn a rate of return.

Infinite Banking: Cash value has guaranteed growth + Dividends.

How safe is your cash?

Velocity Banking: Equity is not safe because it can drop in value.

Infinite Banking: Safe because your cash value cannot drop in value.

If we're looking for the strategy with the maximum control, that you can access and use without the bank's permission, and no one can close down my terms of authorization to get my cash, that's the maximum control.

And now after we've compared line by line velocity banking versus infinite banking, I would say, head and shoulders infinite banking puts you in a position of control. And that is because you have safety, access to your cash value, and an uninterrupted compound growth.

With velocity banking, I'm not in control because the bank has the authority to trump my access to capital.

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