BUNGALUX

July 28, 2012

Mark Zuckerberg Has a 1% Mortgage Rate, Do You?

We're Talking Mortgages

After Tax Interest-Only Mortgage on This Sherman Oaks House: Approximately $2500/Month

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Everything Mark Zuckerberg does seems newsworthy lately.

The latest: The refinance of his PALO ALTO ESTATE.

News sources are reporting that the Facebook founder refinanced a $5.95 million mortgage on his Old Palo Alto home with a 30-year adjustable-rate loan starting at 1.05%.

The first question one may ask is as follows: Why would Mark Zuckerberg, who at 28 is the is the world's 40th-wealthiest person, with a net worth of $15.7 billion, have a mortgage at all?

The answer to that question has been propelling today’s real estate market.

First, lending rates, as most of us are aware, have reached record lows. While rates will most likely stay low for a while, there is some uncertainty as to where they will go long term, and the cost of borrowing is lower than it’s ever been. At rates hovering around 3.5% for interest-only loans, many people feel as if they can get a greater return by taking out a mortgage and investing that money elsewhere. In addition, in the case of Mark, he received his loan from First Republic. Often individual banks may offer even more attractive loans to its high-net worth clientele, as First Republic did in this case.

Secondly, even wealthy people like that tax deduction. While not all of a $6 million mortgage is tax deductible, the interest on some of it is. And for us non-billionaires, that makes a huge difference in our bottom line.

In order to illustrate the above points, here’s some interesting information from First Capital. Although numbers and rates very depending on individuals and situations, on a 3.5% interest-only loan, a $500,000 purchase with 20% down will have a monthly cost of $1,167. Even adding insurance and property taxes, this is much lower than most people are paying on rent on a moderate apartment. After the tax deduction, you’re looking at a $1,000-$1,300 monthly payment, even including property tax and insurance. Likewise, for a $1,000,000 house with 20% down, one's monthly payments (after taxes) would be around $2,200 - $2,800 assuming an interest-only loan at 4%.

While these figures are ballpark figures, they show the real advantages to owning versus buying now, and the benefits of having a mortgage versus buying in all-cash.

In order to further the point, I’ve included an incredible example of a rental versus purchase above. I chose the Sherman Oaks area of Los Angeles, but I would suggest that similar examples occur in other cities across the US.

Also, click below to our article on Mark Zuckerberg’s Palo Alto house to see it up-close-and-personal. Ahh, I love Palo Alto and I love that house.

Here's Mark Zuckerberg's House ...

• We "Like" It, Mark