📊 Mathematical Fact
With consistent cash flow that exceeds the required payment, both types produce IDENTICAL results. This is not a bug or limitation - it's pure mathematics. The difference is in payment structure, not outcome.
Interest-Only HELOC
Pay only the interest each month. All your net cash flow goes directly toward reducing the principal balance.
Best for: Maximum flexibility, can pay more when cash is available, less when tight.
Amortized HELOC
Fixed monthly payment (like a traditional loan). Any cash flow above the required payment goes toward extra principal reduction.
Best for: Structured repayment, enforced discipline, predictable payments.
Example: $25,000 chunk at 8.5%, $3,000/month cash flow
Interest-Only:
• Interest: $177.08
• Principal paid: $3,000 - $177.08 = $2,822.92
Amortized (10-year term):
• Required payment: $309.75 (includes $177.08 interest)
• Extra payment: $3,000 - $309.75 = $2,690.25
• Total principal: $132.67 + $2,690.25 = $2,822.92
Result: Identical!
⚠️ Important: Results Will Be Identical
This is mathematically correct, not a bug! When your cash flow consistently exceeds the required payment, both types produce the same payoff time and total interest.
The Real Difference
The choice is about payment structure and flexibility:
✅ Amortized: Enforces $309.96/mo minimum payment every month (better discipline, prevents falling behind)
✅ Interest-Only: No required minimum beyond interest (flexibility to pay more/less as cash flow varies)
When Would They Differ?
Outcomes only differ when:
• Cash flow varies month-to-month (amortized still requires minimum)
• You need to pay less some months (interest-only allows it)
• You encounter cash shortages (amortized could cause problems)
Real-World Considerations
Important: In practice, interest-only and amortized LOCs may produce different results due to:
• Balance timing: When you deposit/withdraw during the month affects daily interest
• Daily vs. monthly interest: Real LOCs use daily compounding, not monthly
• Payment flexibility: Interest-only lets you adjust payments based on actual cash flow
• Discipline factor: Amortized enforces minimum payments, preventing underpayment
This calculator assumes consistent monthly cash flow and monthly interest calculations, which is why results appear identical.
⚠️ When Does Velocity Banking Help?
Important: Velocity banking only makes financial sense when:
✅ Your LOC rate is LOWER than your mortgage rate
✅ You have irregular income and want to use LOC as a cash flow buffer
❌ If LOC rate > mortgage rate: Just pay extra to mortgage directly!
This calculator now shows a FAIR comparison: both strategies use the same cash flow. Results may show velocity is slower/costlier when LOC rate is higher.