Yes, your mortgage does count in your net worth. The home’s current market value goes on the asset side of the ledger, and the outstanding mortgage balance goes on the liability side. The difference between those two numbers is your home equity, and that is what actually flows through to your net worth. For most American homeowners, it’s the single largest piece of the total.
How the Home and Mortgage Enter the Formula
Net worth is everything you own minus everything you owe. Assets include cash, retirement and brokerage balances, the market value of real estate, vehicles, and other property you could sell. Liabilities include credit card balances, student loans, auto loans, personal loans, and the remaining balance on any mortgage.
Your home shows up twice in that equation. Its fair market value counts as an asset. The mortgage balance counts as a liability. The net effect on your bottom-line number is your equity in the property.
Say your home is worth $400,000 and you owe $250,000. The home contributes $150,000 to your net worth. You don’t shortcut this by listing only the $150,000 of equity as an asset and ignoring the mortgage. List the full $400,000 on the asset side and the full $250,000 on the liability side. The bottom line comes out the same either way, but keeping the two entries separate shows you how much of your wealth is locked in an illiquid asset and how much debt you’re actually carrying. Year-over-year comparisons are cleaner too.
Which Home Value to Use
The number that matters is current fair market value, not what you paid. In many markets those figures are wildly different. The IRS defines fair market value as what a willing buyer would pay a willing seller, with both parties having reasonable knowledge of the relevant facts.
You have three practical ways to get that number:
- Online valuation tools like Zillow, Redfin, and Realtor.com generate instant estimates from comparable sales and property data. They’re free but carry meaningful error margins. Zillow’s own reporting puts its median Zestimate error at around 4.3%, which on a $400,000 home can mean being off by $17,000 or more.
- Comparable sales research. Look at recent sale prices for similar homes on your block or in your immediate neighborhood. Free, and it gives you local context, but it takes some judgment about which sales really are comparable.
- A professional appraisal. A licensed appraiser inspects the property and produces a detailed valuation, typically for $450 to $1,200. Overkill for casual tracking, useful when you’re making a real financial decision on the number.
For annual tracking, an online estimate is usually fine. Pick one source and stick with it so your year-over-year numbers stay comparable, even if the absolute figure isn’t perfectly precise.
Which Mortgage Number to Use
On the liability side, the technically correct number is the payoff amount, not the principal balance on your monthly statement. They’re different. The payoff amount includes accrued interest through the date you’d actually pay off the loan, and it may include other fees. As the Consumer Financial Protection Bureau puts it, your current statement balance “might not reflect how much you actually owe to completely satisfy the outstanding loan balance.”1Consumer Financial Protection Bureau. What Is a Payoff Amount and Is It the Same as My Current Balance?
For everyday net worth tracking, the principal balance on your latest statement is close enough. If you’re doing this for a loan application, a legal proceeding, or a major financial decision, request a formal payoff statement from your servicer. Servicers are required to provide an accurate payoff figure on request.1Consumer Financial Protection Bureau. What Is a Payoff Amount and Is It the Same as My Current Balance?
One number to never use: the original loan amount. If you borrowed $300,000 five years ago, you’ve been paying down principal since. Only the current remaining balance belongs on the liability side.
A Worked Example
Here’s how the pieces line up for a homeowner with a typical mix of assets and debts.
Assets:
- Home (fair market value): $400,000
- 401(k) balance: $85,000
- Savings account: $15,000
- Vehicle: $12,000
Liabilities:
- Mortgage balance: $250,000
- Student loans: $18,000
- Credit card debt: $5,000
Total assets: $512,000. Total liabilities: $273,000. Net worth: $239,000. The home contributes $150,000 of equity to that figure, which is nearly two-thirds of this person’s total. That ratio is fairly typical. Federal Reserve data shows that home equity represents a dominant share of wealth for most American homeowners.
When You Owe More Than the Home Is Worth
If your mortgage balance exceeds the home’s current market value, you have negative equity. The property still enters both sides of the equation. Instead of contributing to net worth, it drags on it. A home worth $300,000 with a $350,000 mortgage subtracts $50,000 from your net worth.
Negative equity doesn’t automatically mean your overall net worth is negative. Other assets can offset it. But the home is a net liability rather than a net asset while it lasts. This situation usually comes from a market downturn, a purchase with a very small down payment right before prices dropped, or home equity borrowing that pushed total debt above the property’s value. Values recover over time in most markets, and monthly principal payments keep chipping the balance down regardless of what prices do.
Realism Adjustments Some People Make
The standard formula uses face-value numbers, and that’s the right approach for consistent tracking. Some people prefer a more conservative figure that reflects what they’d actually walk away with.
Selling costs are the main one on the real estate side. If you sold tomorrow, you wouldn’t pocket the full difference between market value and mortgage balance. Real estate commissions run roughly 5% to 6% of the sale price nationally, and seller closing costs add another 1% to 3% depending on location. On a $400,000 home, that’s potentially $24,000 to $36,000 you’d never see. Most financial planners use the standard formula without deducting hypothetical selling costs because you aren’t actually selling. If you’re close to retirement and planning to downsize, factoring them in gives you a more honest picture.
Taxes are the other adjustment. Traditional 401(k) and IRA balances aren’t entirely yours on paper because withdrawals are taxed as income. Some people discount those balances by an estimated future tax rate; others track the gross number. Either works if you’re consistent. Roth accounts are already taxed and generally come out tax-free in retirement.
Capital gains on the home itself rarely change the picture. Federal law excludes up to $250,000 in gain for single filers and $500,000 for married couples filing jointly, provided you owned and lived in the home for at least two of the five years before the sale.2Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence Most homeowners never owe capital gains tax on a primary residence. For those with gains above the exclusion, the IRS walks through eligibility in Publication 523.3Internal Revenue Service. Publication 523 – Selling Your Home
One Exception: Accredited Investor Rules
There is a specific context where your home and mortgage are deliberately left out. To qualify as an accredited investor under SEC rules, which opens the door to certain private investments, hedge funds, and startup funding rounds, you need a net worth exceeding $1 million. For that calculation, the SEC requires you to exclude your primary residence from the asset side entirely.4U.S. Securities and Exchange Commission. Accredited Investor Net Worth Standard
The mortgage side has matching rules. Debt secured by your primary residence generally doesn’t count as a liability either, as long as the debt doesn’t exceed the home’s fair market value. Two exceptions bring mortgage debt back onto the ledger:
- Negative equity. If you owe more on the mortgage than the home is worth, the excess counts as a liability.
- Recent borrowing. If you increased debt secured by your home in the 60 days before an investment purchase, by taking out a home equity loan or refinancing for a larger amount, that increase counts as a liability, even if the home is worth more than the total debt.
These provisions come from the Dodd-Frank Act’s 2010 amendments and are codified in SEC Regulation D.5eCFR. 17 CFR 230.501 – Definitions and Terms Used in Regulation D The 60-day lookback exists to prevent people from borrowing against their home to inflate liquid net worth right before a qualifying investment. Income-based qualification, at $200,000 individually or $300,000 jointly for two consecutive years, is a separate path that sidesteps the net worth test altogether.
Outside of that specialized rule, the standard answer holds. Your home is an asset at its current market value, your mortgage is a liability at its current balance, and the equity between them is what shows up in your net worth.