Magazine article Newsweek

Real Estate: Home Sweet Piggy Bank? the Dangers of Buying Stock against Your Home

Magazine article Newsweek

Real Estate: Home Sweet Piggy Bank? the Dangers of Buying Stock against Your Home

Article excerpt

Byline: Jane Bryant Quinn

Three years ago the Quinns paid off their mortgage. We took a windfall out of the stock market, wrote a check and kissed the biggest debt of our lives goodbye. I hadn't a clue that the market would soon commit suicide. But my husband was breathing "sell" in my ear and the stock was already down from a price too good to be true.

But this story isn't about a lucky sale of stock. It's about why you might--or might not--want to put some extra money into your home.

Prepaying a mortgage may not be high on your "to do" list. On average, people are pulling money out of their homes through refinancing and home-equity loans. But after our blighted affair with stocks, home values are suddenly starting to look like the real deal--something familiar, reliable and, above all, up. Price gains have been hitting quarterly rates of 8 percent to 10 percent a year, the highest since 1979.

Investing in homes is now part of the general gab about finding something better than stocks. But here's news that may surprise you: prepaying a mortgage is not a real-estate investment. Your prepayments give you a fixed return that equals the loan's interest rate. My mortgage was costing me 6.9 percent, so by wiping it out I got a 6.9 percent return, pre-tax. Not an exciting number, but, hey, it's not WorldCom.

The total value of your home is, of course, an investment exposed to the vagaries of your local housing market. The investment is usable, however, only when--and if--you take the profits out.

Let's say you're thinking of your house as a future retirement investment--one more reliable than stocks. To cash in, you'll have to do one of two things: sell and move to a smaller place or borrow against the house when you've retired. Either way, you'll need a home worth far more than the mortgage against it. …

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