How Much Equity Should I Have in My Home Before I Start Investing?

Choosing between the mortgage and investing generally favors investing.

Homes Are Investments

A home is the largest purchase most people make, and it appreciates in value, the events of 2007 to 2009 notwithstanding. Money invested in your home gives a tangible benefit: A place to live. Structuring your mortgage payments to pay off your home faster is a sound, if conservative, investment strategy.

Other Investments Yield Better

Mortgages have low rates of interest; investing money in other investment products can return (and grow) at a much faster rate than your accumulated equity in your home. Particularly good investments are those that are tax sheltered, like a 401(k) plan or an IRA

Bottom Line

The amount of equity you have in your home is an unrelated variable to whether or not you should invest; paying the mortgage off faster is a good investment if you intend to keep the home, but in terms of investing, most good, basic investment programs will give better returns.

References

• LendingTree.com: Pay down Mortgage Versus 401(k) Contributions?