When homeowners separate equity to reposition it in a liquid, safe, side account a mortgage payment is created. The mortgage payment is considered the Employment Cost. What many people don’t understand is when we leave equity trapped in our home, we incur the same cost, but we call it a lost Opportunity Cost. The money that’s parked in your home doing nothing could be put to work earning you something.

Let’s say you had $100,000 of equity in your home that could be separated. Current mortgage interest is 5%, so the cost of that money would be $5,000 per year (100% tax deductible). Rather than bury the $100,000 in the backyard, we are going to put it to work, or “employ” it. By separating the equity we give it new life. We give ourselves the opportunity to put it to work and earn something on it. Assuming a 28% tax bracket, the net employment cost is not 5%, but 3.6%, or $3,600 per year after taxes (mortgage interest is 100% tax deductible).