How seeing your house as an investment can create a better financial picture for you

You probably bought your house for a very practical reason: you need somewhere to live and didn’t want to rent anymore! Perhaps you also like having control over your own space, not having a landlord, or running the risk of getting evicted.

Most people don’t think about their house as an investment, even though they’re aware that homeownership is generally a better financial decision than renting.

But let me show you how a little mindset shift can make a big difference in your overall net worth long term.

Take a peek every once in a while at your home equity

Your home equity is what your house is worth minus what you owe on it. Whenever you sell your home in the future, that’s the money you keep, minus the closing costs.

For many people, it makes up the majority of their net worth.

When you pay attention to your home equity, then you can be more conscious about ways to protect that part of your net worth and even grow it.

Some people who don’t keep tabs on their home equity make decisions like getting a home equity sharing product instead, or don’t consider ways to build more equity, like more strategic home improvements. Keeping your home equity in mind helps you to maximize your net worth in the long run.

Balance your financing strategy out with your overall investment goals

Certainly, at many points of your life, you’ll need to keep your costs as low as possible, especially if you are avoiding taking on more debt. At other points, you’ll want to consider paying down your mortgage, shortening your mortgage, or other strategies in addition to contributing to your investment portfolio.

If you’re keeping your costs as low as possible, then you can choose things like refinancing whenever rates dip, or into a longer term loan or adjustable rate loan, knowing that you’ll readjust later. You’re making trade offs on the equity you build, but it can be the right decision.

At other points, your goals may align with reducing interest costs by shortening your mortgage, recasting it, adding extra payments or other strategies. The important thing is that you’re making moves that purposefully align with your goals.

When you refinance, consider both cost and home equity

You probably have noticed that mortgage payments are structured so that in the beginning of your term, a greater proportion of your payment goes to interest (money for the bank to lend you the money) and less goes to principal (paying down the loan amount). At the end of the term, usually 30 years, most all of your payment is going towards paying down the loan amount.

When you refinance, your mortgage payments are structured so that you’re paying mostly interest again, because you’re back at the beginning of a brand-new loan.

Most people don’t think about this.

If you’re refinancing purely for monthly cost savings, this might not be a consideration. But if you’re looking to make the most of your money, you could end up spending more over time than you intended, by not building nearly as much equity.

The bottom line

Be intentional with your homeownership and learn more about how home equity and financing can be considered to build your wealth over time.