Should Most of Your Net Worth “Reside” in Your Home?

how much net worth in home equity loan

Jeff Cuellar


When it comes to measuring net worth in Singapore, property plays a huge role in the equation. And why shouldn’t it? Property prices in Singapore are notorious for being ridiculously high with many people cashing in as home loan rates are low!

The amount you must pay for a Housing and Development Board (HDB) 3BR resale flat can easily buy you a 5BR two-storey house in many other countries. I mean, it’s no wonder some home owners end up spoiling the market by overpricing their homes!

But that begs a serious question – should most of your wealth reside in your home? That’s a tricky question that depends largely on a very important factor – equity.


What is This “Equity” You speak of?

In short, equity is ownership value that you build up in your home over time. Equity takes into account both the market value of your property AND the value of your home minus any outstanding home loan repayments.

For example:

Let’s say that you’ve just purchased a 4BR condominium in Pasir Ris for $1,000,000.

You took out a 25-year bank loan at an initial (fixed) interest rate of 1.6% and made a 20% down payment.

That down payment is your starting equity because that’s how much “ownership” you’ve already built up at the start.

But as time goes by and you continue to make your monthly mortgage payments on the property, you start building up equity through a combination of the following:

  • Your starting equity (down payment)
  • Your total principal paid (mortgage repayments)
  • Your property’s appreciation in value

Here’s a graph giving a general overview of how equity builds up when purchasing your home (according to example above @ 3% appreciation in value):

Note: Keep in mind this is just for illustration purposes only. This graph doesn’t factor CPF, fluctuations in the loan interest rate or major increases/downturns in home appreciation.


Why Shouldn’t Your Home Equity Make up Most of Your Net Worth?

When it comes to calculating your net worth, your property is probably the biggest factor in determining whether your assets outweigh your liabilities. Your property starts out as a liability when you first “purchase” it – because you haven’t built up enough equity to have enough “ownership” of the property.

But as years go by and the amount you owe on the property’s mortgage becomes less and less, that liability will turn into one of your most important assets. However, relying exclusively on your property (or additional property investments for that matter) to boost your net worth is a risky move.

Here are three key reasons why keeping most of your net worth locked up in your property is a BAD idea:

  • Property is a Huge Drain on Your Cashflow: The more expensive your property and/or investment properties are, the bigger the drain on your cashflow will be in terms of your mortgage(s), taxes, utilities, maintenance and management costs will be. Plus, if you’re still making mortgage payments and interest rates rise, your cashflow will shrink further.
  • You Have too Much Locked up in One Asset: Any financial planner will tell you that you shouldn’t put too much of your net worth into one specific asset, especially property. Because all it takes is a financial crisis and a big increase in interest rates to spoil your nest egg. But if you diversify your investment portfolio with stocks, bonds and cash, you can avoid a scenario where you have to dump a property fast to get cash quickly.
  • Property is Far From Liquid: Selling a property isn’t as easy as putting it up on Gumtree and waiting for someone to pay cash for it. Even worse, if the property market is slow, you’ll not only get a lower price for your home, but it can take a few months to sell. If you need cash quickly, you opt to cash-out refinance your home (private property) but it’ll still take a month or more.

Ideally, your home (or any other property investments) should play a “supporting” role in propping up your net worth.  Creating a diversified investment portfolio that includes a mix of assets including stocks, bond, exchange-traded funds (ETFs), etc.

If you’re new to investing, we highly recommend you check out our 6-part SGX series on investing here:

Also, don’t forget to check out our Investing Learning Center to learn more basic investing tips!


Do you think it’s financially healthy to have such a large part of your net worth invested in your home? Share your thoughts with us on Facebook! For even more useful information on everything personal finance, visit MoneySmart today!


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Jeff Cuellar

I'm known by many titles: copywriter, published author, literary connoisseur, ex- U.S. Army intelligence analyst, and Champion of Capua.