I recently recorded 5 Renovating Retirement Podcast episodes on how home equity is not a wise investment.

Home equity is defined as is the market value of a homeowner’s unencumbered interest in their real property. Money put inside of the home and the interest on top of the mortgage.

Home equity and mortgages go hand in hand, and I speak often about how paying off your mortgage is a bad decision and should never be in your financial plan. If it is in your financial plan, you need to fire your financial advisor right now! In this post, I want to recap on those 5 podcast episodes and explain how home equity fails all four tests of a wise investment.

Episode 075: How Home Equity Fails the Liquidity Test

This is a very popular and comfortable choice for many people but a terrible financial decision! Liquidity is the ability to having money and spending it when you need it most. If something happens, or there is an emergency, you need money fast.. this is liquidity. t fails the wise investment test because having money inside a home does not allow you to use it when you need it if you lose your job, or lose your home.

It fails the wise investment test because having money inside a home does not allow you to use it when you need it if you lose your job, or lose your home.

Episode 076: How Home Equity Fails the Safety Test

Is home equity safe from losses? What if your home depreciates or you lose your home to a natural disaster like the residents of New Orleans? In this case, your home is not safe from losses so it fails the safety test. Putting money inside of a piece of real estate, IS NOT CONSERVATIVE.

Episode 077: How Home Equity Fails the Rate of Return Test

In this episode, I talk about how home equity does not earn enough rate of return to keep up with inflation. The real question to ask about home equity and rate of return is, does the interest have a rate of return and if so, how much are you being paid on it?

Every dollar you choose to take out of investments and pay against your principle costs you whatever amount of interest you could have earned on that dollar.

Episode 078: How Home Equity Fails the Tax Treatment Test

Having home equity does not help with your taxes and forces you to pay more! There are no tax advantages to having half of your home paid off in home equity.

Using investments or equity from the sale of the home, and paying cash for the home is a terrible mistake! Using extra monthly payments to speed up how quickly the mortgage interest deduction goes away is a terrible mistake. Retirees with money in IRA’s and social security income coming in, paying extremely high taxes due to not having the mortgage interest deduction is a terrible mistake. Real estate investors – having 15 or more rental properties is a terrible mistake.

Episode 079: Where to Store your Home Equity

In this episode, I recap on the last 5 episodes and explain where to store your home equity instead if putting it into a mortgage. I will introduce you to the concept of the Equity Savings Account. This is a necessary place to store home equity that is liquid, safe, earning a good rate of return and provides tax deductions.

You can also learn more about mortgage planning in my eBook “Two Ways to be Debt Free: Mortgage Planning”


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