Is it Better to Have Money in the Bank or Tied Up in Your Home?

List: Posted: 09/08/11

For some people, the choice of putting their money in a savings account or paying down a home mortgage can be a tough decision.  However, with each decision, there are both benefits and drawbacks.

If you choose to put your money in a savings account, you do not have as much equity in your home.  This can lead to problems if you find that you ever need to take out a second mortgage or a home equity loan.  While you might have a decent amount of money in that savings account, it might not be enough for your needs here.

 

If you choose to put your money into your home mortgage, rather than into a savings account, you will have more power when it comes to using that home as collateral.  However, you will have less liquidity for short-term needs.  This means that those who do not have enough in a savings account will find that coming up with cash in a short time can be more than difficult.

 

The ideal option is to have a good balance between the two.  You need enough cash in your savings account to cover reasonable short-term needs, but you should have enough equity in your home that using it as collateral is a viable option, not a hopeless cause.

 

When you use your mortgage and your savings account to your advantage, you can enjoy the best possible financial stability.  Leaning too far one way or the other can have some significant disadvantages for your financial health.

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