Zuckerberg’s 1% Mortgage: Why a Billionaire Needs a Loan?

No matter who you are, if you qualify for a home loan, you’ll get a historically low interest rate on your mortgage in today’s market.

But unless you’re a billionaire, it won’t be as low as Mark Zuckerberg’s.

In addition to getting married and taking his company public, the Facebook CEO capped off a busy summer by refinancing his home’s mortgage, Bloomberg reported Monday. The Palo Alto, California home, three miles from Facebook’s headquarters, cost $5.95 million, and Mr. Zuckerberg financed it with a 30-year adjustable mortgage, with a rate of 1 .05%, less than half the national average.

At 28, Zuckerberg is the 40th in the worldand
-richest person, worth an estimated $15.6 billion. If he wanted to, he could buy a dozen houses for $6 million, cash, without batting an eyelid. So why take out a home loan?

Because it costs him absolutely nothing. “When you can borrow at an interest rate below inflation, you’re essentially borrowing for free,” says Greg McBride, principal analyst at Bankrate.com. a Florida-based company that tracks interest rates on mortgages, auto loans, and credit cards, among others. “When you can borrow for free, it makes no sense to tie up your own money, when you can use that money for more profitable things.”

To put Zuckerberg’s low rate into perspective, the average interest rate for a 30-year jumbo mortgage that can adjust after one year is 2.76%, according to Bankrate.com. A 30-year fixed-rate mortgage hit 3.56% on Monday — another record high in a record summer and the lowest level since long-term mortgages began in the 1950s, according to The Associated Press.

So how did the Zuck land at such a low rate? For one thing, his mortgage is adjustable, which means the interest rate could go up. These types of loans generally have lower interest rates, but are reserved for buyers who pose virtually no risk to the lender (a billionaire is unlikely to default).

“It’s not a celebrity-only product,” says McBride. “These aren’t necessarily billionaires. We’re talking about people who are millionaires, at least – corporate executives, wealthy people.

“These people don’t take out a loan because that’s the only way they can buy that house,” he adds. A variable rate mortgage “is not a mainstream product”.

If interest rates skyrocket or become too high to hold a mortgage, Zuckerberg and his ilk can easily buy their home, leaving the mortgage without any repercussions.

Many point to preferential rates given to the rich as another example of how the wealthiest Americans stay that way, pointing out that Zuckerberg’s 1% loan gives a whole new meaning to complaints about the ‘1%’ of Americans being rich. underlying the Occupy Wall Street protests last year.

But while the rest of us, 99%, may not have access to a 1% mortgage, home loans are at least not the financial trap they were five years ago. .

“The subprime mortgage market [in which lenders dealt out high interest loans to risky, often low-income borrowers who couldn’t make their payments] are virtually non-existent,” says McBride. That’s not to say that 9% interest rates don’t exist. But 95% of mortgages are now government guaranteed loans with very attractive interest rates. And these are only available to creditworthy borrowers.

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