Should I Include My Home Equity in My Net Worth Calculation?

Your net worth is one of the most important measures of your overall financial health, yet not every asset plays the same role in your financial life. Home equity sits at the center of this distinction for millions of Americans.

Whether home equity belongs in a net worth calculation is a question that surfaces constantly. The short answer is yes: home equity is technically part of your net worth. The fuller answer is that it behaves very differently from cash or investments, and treating it as interchangeable with liquid assets can lead to flawed retirement planning. Grasping that difference helps you set more realistic goals and sidestep some costly surprises down the road.

A recurring theme in personal finance discussions is whether home equity counts toward a retirement savings target. Most financial planners draw the same line: equity belongs in your total net worth, but it should be tracked separately from your investable assets for planning purposes.

What goes into net worth?

The formula is simple: total assets minus total liabilities. Here is a concrete example that includes home equity:

Assets:
IRA: $1 million
Brokerage account: $100,000
Savings account: $100,000
Home value: $800,000
Total Assets: $2 million

Liabilities:
Mortgage balance: $300,000

Subtracting liabilities from assets puts total net worth at $1.7 million. Strip out the home equity and that figure drops to $1.2 million. The $500,000 gap represents real wealth, but it is not money you can spend next month.

The more useful distinction for planning purposes is between Total Net Worth and Investable Net Worth. For anyone pursuing financial independence, home equity is often called a “static asset” because it generates no monthly cash flow to cover living expenses. Tracking both figures side by side gives a far clearer picture of where you actually stand financially.

Equity, liquidity, and market context

To access the $500,000 in home equity from the example above, you have two realistic paths: borrow against it or sell the home. Borrowing through a home equity line of credit (HELOC) or a cash-out refinance adds to your debt load and exposes you to prevailing rates. The national average HELOC rate was 7.29% as of September 2, 2026, according to Bankrate’s survey of the nation’s largest home equity lenders. That figure sits well above the sub-4% fixed rates millions of homeowners locked in during 2020 and 2021. This “rate lock-in effect” makes home equity far less liquid than it appears on a balance sheet.

The broader housing picture reinforces the point. U.S. mortgage holders reached a record $18 trillion in total home equity in the second quarter of 2026, according to the ICE Mortgage Monitor, with the average mortgaged borrower holding roughly $310,500 in total equity, per Cotality’s first-quarter 2026 Homeowner Equity Insights Report. Within that $18 trillion total, 47.5 million mortgage holders collectively hold $11.7 trillion in tappable equity, averaging about $212,000 per borrower in funds that could be accessed while still maintaining at least a 20% equity cushion. Annual home price growth reached 1.5% in July 2026, its fifth consecutive month of acceleration, though ICE noted that rising rates since early in the year could limit further gains through the second half. Despite those record headline figures, home values can and do shift in either direction, which is another reason to avoid leaning on equity as a substitute for investable savings.

More homeowners are choosing to tap their equity even so: outstanding HELOC balances reached $446 billion in the first quarter of 2026, the 16th consecutive quarterly increase, according to the New York Fed’s Quarterly Report on Household Debt and Credit. Separating net worth goals from savings goals is a practical way to manage this reality. Using the example above, if the target is $2 million in retirement savings, the relevant number is the $1.1 million currently held in the IRA and brokerage account. The focus belongs on accumulating another $900,000 in liquid or investable assets, with home equity tracked separately rather than counted toward the spendable goal.

Optimizing equity for the future

Total net worth is worth monitoring as a broad snapshot of financial health. Still, when much of your wealth growth is tied to home appreciation rather than portfolio growth, it is worth shifting focus toward building investable assets instead.

For those who arrive at retirement with substantial home equity, a strategy sometimes called “equity optimization” through downsizing can convert that stored value into usable capital. Selling a larger home and relocating to a lower-cost area frees up cash that can flow into a brokerage account or fund retirement contributions. Under SECURE 2.0 rules now in full effect, workers age 50 and older can contribute up to $8,000 per year in catch-up contributions to a 401(k) or similar plan in 2026, per the IRS. A higher “super catch-up” limit applies for employees turning ages 60, 61, 62, or 63: for 2026, that limit is $11,250, also confirmed by the IRS. High earners who made more than $150,000 in prior-year FICA wages are required to make those catch-up contributions as Roth (after-tax) contributions beginning January 1, 2026. Putting home sale proceeds to work through these vehicles can meaningfully accelerate the conversion of a static asset into one that generates future income.

Editor’s note: This pass corrected the Roth catch-up FICA wage threshold from $145,000 to $150,000, consistent with IRS guidance and confirmed by multiple financial institutions. The national average HELOC rate was refreshed to 7.29% as of September 2, 2026 (from the prior 7.30% figure), and the ICE Mortgage Monitor’s tappable equity figures ($11.7 trillion total, averaging $212,000 per borrower) were added to the market context section.

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