Is a Home With a Mortgage Considered an Asset?

Assets are the things of value you own, whether you buy, inherit or receive them as gifts. If you own your home, it is an asset in strict accounting or finance terms. If you have a mortgage, the home is still an asset; however, that asset now comes with a cost. Your mortgage and other costs, like taxes and maintenance, may help you decide if your home is financially or personally valuable or simply an albatross.

The true value of your home consists of the equity you have in it, calculated as what you can sell the home for minus what you owe on it. Most likely, becoming a buyer means you become a borrower because you don’t have enough cash to pay for the house outright. A mortgage does not lower the value of your home; it means that, if you sell the home, you share the sale price with the bank.

In theory, you already have some equity in the home the moment you close and take the keys; this assumes that home values do not drop. A down payment on the home gives you this instant equity. Most banks require a down payment of 20 percent of the price, unless you get private mortgage insurance, which protects the bank against loan default. Say you make a 20 percent down payment on a home worth $200,000. The home is an asset worth $200,000, but the loan is a liability of $160,000, so your equity is $40,000.

You have more equity in your home when the value rises, the mortgage amount drops, or both. Some home improvements can raise the value of your home, but some cost more than they are worth. Paying down the mortgage reduces the liability side of home buying. In the typical mortgage, payments are allocated to interest and reduction of the loan balance according to a schedule; while the payment remains constant, with time more of the payment will go towards principal reduction.

In addition to a mortgage, a home carries a property tax bill from your local government. The amount you owe depends on what the local tax appraiser thinks your property is worth. You also must foot the bill for homeowner's insurance, flood insurance if it is required, and maintaining plumbing, electricity, heating, air and appliances.