Many people refer to their homes as their greatest asset. This can be the truth. However, there are cases when your home can actually be a liability. The key is to realize the difference between assets and liabilities, and to make sure that you have arranged things so that your home truly is an asset.

What is an asset?

An asset is basically something that earns you money. It is something that grows. When you put money into a savings account, it grows, giving you income. It may be a small income, but it is an income nevertheless that comes free to you, as a result of the money you have put into the account.

The same principle should apply to a home. Are you going to getting something out of it? Will it grow in value? Depending on the home you get, a mortgage can actually be a liability (which is something that sucks away money without really giving you something of increased value in return). If your loan is set up so that you have negative amortization, and you are not building equity, then you are looking at a liability.

In order for your home to be an asset, your mortgage needs to be structured so that when you walk away after selling, you do it with a large chunk of cash in your pocket.