Should I Take out a Home Loan or Sell My Structured Settlement?

Young couple in hand drawn house

If you are among the 80% of Americans who currently has debt, you are probably looking for a way to pay what you owe as quickly as possible. If you own a home or receive structured settlement annuity payments, you have the option to use funds from either source to get rid of unwanted credit card payments, bank loans and more. Here are some things you need to know before deciding which method of debt payment will best work for you.

What is Home Equity?

The amount of equity you have in your home is determined by comparing the total value of your home to the amount you still owe to the bank through mortgage payments. Your equity is what is left after you subtract the remaining amount owed from the total value. Generally, your home equity increases the longer you live in the house and make monthly payments, and can accelerate if your property gains value either because of the market or investments you have made in improving the home.

Home Equity Loan

Most property owners have some equity in their homes, especially if they have put work in the property or values have climbed since the purchase. This could be a source of cash to put down toward other debt payments through two types of home equity loans: straight loans and lines of credit.

Straight Loan

Taking a straight home equity loan gives you a lump sum that you will pay back over time, and will offer regular monthly payments and a fixed interest rate. This chart will allow you to calculate current home equity loan interest rates.

Line of Credit

If you decide to take out a home equity line of credit (HELOC), the lender will set a certain amount that you may borrow over the life of the loan. This type of loan works similarly to a credit card — you can borrow money as you need it, and your credit resolves as you pay off the principal.

Which is right for me?

If you have decided to take out a home equity loan, whether to choose a straight loan or line of credit will depend on the amount of money you need and how quickly you need it. Start by asking yourself the following questions:

  • How soon do I need the money?
  • Do I need the money for a one-time purchase or recurring payments?
  • How long do I expect to take to pay it back?
  • Am I likely to use the money for something other than the purpose of the loan?
  • How big of a monthly payment can I handle?

Straight loans are usually designed for taking a loan for something specific, such as to pay for a child’s wedding, purchase a new car or make a one-time home renovation. If you know exactly how much you need and the amount will be due in full fairly quickly, then it makes sense to go with a straight loan because you can take out more upfront and will know your exact monthly payment amounts over the life of the loan.

If you need money over a staggered period of time, a HELOC might be your best bet. These loans are designed for long-term financial needs, such as paying per semester for a child’s college or remodeling your home over the span of several years. A line of credit gives you more flexibility than a fixed-rate home equity loan to borrow varying amounts of money, when you need it. You only pay interest on what you draw, and monthly payments tend to be lower than a straight loan.

What is a Structured Settlement Annuity?

A structured settlement is a legal settlement paid out as an annuity over time. A structured settlement provides an income stream for a period of years or for the rest of a person’s life, depending on the settlement.

Selling Your Structured Settlement

Instead of continuing to receive periodic payments, you can sell some or all of your structured settlement to a structured settlement purchasing company in order to access your money for an immediate need. A court will need to approve the sale to ensure it is in your best interest.

When to Sell Your Structured Settlement

Even if you are diligent about saving for major life events or necessities, unexpected circumstances can arise. Selling a structured settlement to receive money up front can be a good option if you want or need to avoid going into debt.

Home Equity Loan or Structured Settlement Sale?

Using other methods of receiving a large payment quickly, such as a home equity loan, will eventually necessitate that you pay that money back. Additionally, in order to take out a home equity loan or line of credit, you have to own a home. Nearly 40% of adults do not, so this is not an automatic option for everyone.

Financial experts always advise avoiding as much debt as possible. Your structured settlement payments are an asset—the money already belongs to you. By selling your structured settlement, you are simply changing the way you receive your funds, not accruing additional debt.

However, if you are relying on your structured settlement payments as an essential source of income, a home equity loan or line of credit might be a necessary choice.

That’s why you should contact a representative at SenecaOne. Your Trusted Source will advise you about the options available to you if you choose to sell your structured settlement payments. Contact us today.

*This article is a general informational resource. It is not designed to be investment or financial advice. Contacting a professional is the best course of action before planning your financial future.