Six-Month Cycle Strategy

A structured approach to velocity banking with clear milestones and calculations

Educational Information Only

This page provides a detailed illustration of a hypothetical velocity banking implementation for educational purposes only. The content is not financial advice. All examples, calculations, and numbers are hypothetical and may not represent actual outcomes.

Always consult with qualified financial professionals regarding your specific situation before making any financial decisions.

The Six-Month Cycle Approach

The six-month cycle approach to velocity banking offers a structured implementation that may be easier to manage and potentially more acceptable to lenders. Let's examine how Mark and Sarah, our hypothetical couple, could implement this strategy with precisely timed six-month cycles.

Initial Financial Setup

Mark and Sarah's Starting Position

Home Value: £350,000
Down Payment: £30,000
Mortgage: £320,000 (30-year fixed at 4%)
Initial Equity: £30,000
HELOC Limit: £24,000 (80% of equity)
Combined Monthly Income: £5,000
Monthly Expenses: £3,050 (including mortgage payment)
Monthly Surplus: £1,950

Why Six-Month Cycles?

Creates predictable pattern for lenders
Easier to track and manage
Clear milestones for progress
Optimizes timing for HELOC limit increases
Balanced HELOC utilization
Regular psychological victories

Cycle 1: Months 0-6

Month 0: Initial Setup

Draw £24,000 from HELOC
Make £20,000 lump sum payment to mortgage principal
Keep £4,000 for initial expenses

Financial Position After Initial Setup:

Mortgage balance: £300,000
Equity: £50,000
HELOC balance: £24,000

Months 1-6: HELOC Paydown

During these months, Mark and Sarah deposit their entire income into the HELOC while using it for all expenses. The HELOC balance gradually decreases due to their monthly surplus.

Month	HELOC Starting	Income	Expenses	HELOC Interest	HELOC Ending	Mortgage Balance	Net Improvement
1	£24,000	£5,000	£3,050	£100	£22,150	£299,750	£1,850
2	£22,150	£5,000	£3,050	£92	£20,292	£299,500	£1,858
3	£20,292	£5,000	£3,050	£85	£18,427	£299,250	£1,865
4	£18,427	£5,000	£3,050	£77	£16,554	£299,000	£1,873
5	£16,554	£5,000	£3,050	£69	£14,673	£298,750	£1,881
6	£14,673	£5,000	£3,050	£61	£12,784	£298,500	£1,889

End of First 6-Month Cycle Position:

HELOC balance: £12,784
Mortgage balance: £298,500
Equity: £51,500
HELOC paid down by: £11,216

HELOC Limit Increase Request (Month 6)

In Month 6, Mark and Sarah request a HELOC limit increase based on their new equity position:

New equity: £51,500
Potential new HELOC limit: £41,200 (80% of equity)
They time this request to complete just before starting Cycle 2

Cycle 2: Months 7-12

Month 7: Second Lump Sum Payment

New HELOC limit: £41,200
Current HELOC balance: £12,784
Available credit: £28,416
Draw the full available amount
Make £25,000 lump sum payment to mortgage principal
Keep £3,416 for expenses

Financial Position After Second Lump Sum:

New mortgage balance: £273,500
New equity: £76,500
HELOC balance after new draw: £41,200

Months 8-12: HELOC Paydown

During these months, Mark and Sarah continue depositing their income into the HELOC and paying expenses from it, gradually reducing the balance.

Month	HELOC Starting	Income	Expenses	HELOC Interest	HELOC Ending	Mortgage Balance	Net Improvement
8	£41,200	£5,000	£3,050	£172	£39,422	£273,250	£1,778
9	£39,422	£5,000	£3,050	£164	£37,636	£273,000	£1,786
10	£37,636	£5,000	£3,050	£157	£35,843	£272,750	£1,793
11	£35,843	£5,000	£3,050	£149	£34,042	£272,500	£1,801
12	£34,042	£5,000	£3,050	£142	£32,234	£272,250	£1,808

End of Second 6-Month Cycle Position:

HELOC balance: £32,234
Mortgage balance: £272,250
Equity: £77,750
HELOC paid down by: £8,966

HELOC Limit Increase Request (Month 12)

In Month 12, they request another HELOC limit increase:

New equity: £77,750
Potential new HELOC limit: £62,200 (80% of equity)

Cycle 3: Months 13-18

Month 13: Third Lump Sum Payment

New HELOC limit: £62,200
Current HELOC balance: £32,234
Available credit: £29,966
Draw the full available amount
Make £27,000 lump sum payment to mortgage principal
Keep £2,966 for expenses

Financial Position After Third Lump Sum:

New mortgage balance: £245,250
New equity: £104,750
HELOC balance after new draw: £62,200

Months 14-18: HELOC Paydown continues with the established pattern:

Deposit £5,000 monthly income into HELOC
Draw £3,050 for monthly expenses
Net monthly improvement of approximately £1,800

End of Third 6-Month Cycle (approximate):

HELOC balance: approximately £53,000
Mortgage balance: approximately £244,000
Equity: approximately £106,000

Continuation of Six-Month Cycles

Growing Lump Sum Payments

As the pattern continues, several important trends emerge. Each cycle enables increasingly larger lump sum payments:

Cycle	Lump Sum Payment
Cycle 1	£20,000
Cycle 2	£25,000
Cycle 3	£27,000
Cycle 4	£32,000
Cycle 5	£38,000
Cycle 6	£45,000
Cycle 7	£54,000
Cycle 8	Final payoff (approximately £64,000)

Steadily Declining Mortgage Balance

Timeline	Mortgage Balance
Starting	£320,000
After 1 year	£272,250
After 2 years	£202,250
After 3 years	£124,250
After 4 years	£25,250
Approximately 4.5 years	£0

Final Results and Timeline

Final Timeline with Six-Month Cycles

Complete mortgage payoff: 4.5 years
Final HELOC payoff: 5.5 years
Total time until debt-free: 5.5 years
Interest saved: Approximately £190,000
Time saved: 24.5 years

Key Advantages of This Approach

Banks prefer predictable patterns for HELOC usage
Easier for the couple to plan and track progress
Creates clear milestones to aim for and celebrate

Requesting increases just before making lump sum payments
Allows banks to see responsible HELOC management
Maximizes available credit when it's most needed

Never allowing the HELOC to remain at maximum for too long
Demonstrating consistent paydown ability
Building credibility with lenders for future increases

Regular victories (every six months)
Clear before/after comparisons
Maintaining motivation through visible progress

Important Considerations

Key Requirements

Financial Discipline: This strategy requires strict adherence to the plan and avoiding unnecessary expenses.
Stable Income: A consistent, reliable income stream is crucial for the steady HELOC paydown.
Positive Cash Flow: You must consistently spend less than you earn to generate the necessary surplus.
HELOC Availability: You need access to HELOC products with favorable terms and the ability to increase limits.
Home Value Stability: The strategy works best when property values remain stable or increase.

Potential Risks

HELOC Interest Rate Increases: Since HELOCs typically have variable rates, significant increases could affect the strategy's effectiveness.
Income Disruption: Job loss or income reduction could make it difficult to maintain the necessary HELOC payments.
Property Value Decline: A decrease in property value could limit HELOC availability.
HELOC Terms Changes: Banks may change HELOC terms, limit increases, or reduce existing limits.
Lack of Discipline: Failing to maintain financial discipline could result in increased debt rather than accelerated payoff.

UK-Specific Considerations

In the UK context, there are some specific factors to consider:

HELOC Availability: Pure HELOCs are less common in the UK than in the US. Offset mortgages, flexible mortgages, or revolving credit facilities might be alternative options.
Lending Criteria: UK lenders may have different requirements for approving and increasing credit lines secured against property.
Interest Rate Structure: The spread between mortgage rates and HELOC rates in the UK might differ from what's typical in other markets.
Regulatory Environment: FCA regulations may impact how this strategy can be implemented by UK homeowners.

For more information about implementing velocity banking in the UK mortgage market, see our UK Context page.

Related Resources

How Velocity Banking Works

Understand the fundamental principles and mechanics behind the velocity banking strategy.

Learn More

UK Context

Explore how velocity banking concepts might apply in the specific context of UK mortgage products and regulations.