by John Darer CLU ChFC CSSC RSP CLTC
Should you sell your structured settlement to pay off your mortgage? The Stone Street Capital boffins apparently think that this is a viable financial strategy.
Stone Street Capital's tweet of the day on January 16, 2015 highlights Quentin Fortrells's January 14, 2015 Marketwatch article with the headline that "the average American pays $280,000 in interest" , posing the question "do you want to get out of debt?" followed by the familiar pitch phrase, "get lump sum for structured settlement".
Selling your structured settlement to pay off your mortgage could very well be one of the dumbest things you could do. Here's why.
If you have a mortgage bearing an interest rate of less than 6% chances are the effective discount rate being charged by the settlement purchaser will be much higher than that. While it is possible to get discount rates in the 6.5% range, it is possible that, depending on the purchaser, the true cost could be more than a 10% effective discount rate.
The Marketwatch article centers on mortgage interest which, for many, is tax deductible. Even if someone is enduring tougher times, such as a career transition, it is possible that the deductions will be useful down the road.
The Stone Street Capital's follow up tweet touts the current 30 year mortagge rate of 3.8% as "re-fi heaven". Refinancing IS a sensible viable option if available to you. Somehow I don't think they or any other cash now pusher has a cost of money that permits them to have a business model with effective discount rates less than 3.8%.
A Structured settlement is like a job you can never be fired from. Don't let a pitch phrase get between you and your job. Sell your structured settlement only if there is no other alternative and AFTER you have explored all your options with a credentialed financial professional.