Apache is functioning normally
It’s always interesting to see what the rich and famous are doing, right?
Heck, celebrity magazine Us Weekly features a section called “Just Like Us,” which attempts to liken celebrities to everyday people.
They “play in the park” and “get their car washed,” just like us…
But what about when they buy real estate and obtain mortgages – are they just like us?
Not exactly, as evidenced by a recent mortgage transaction from Facebook founder Mark Zuckerberg.
Zuckerberg Is the 1%, Literally
Back in March 2011, the tech billionaire purchased a $7 million home in Palo Alto, California using a $5.95 million adjustable-rate mortgage obtained from Morgan Stanley, the same company who handled the Facebook IPO.
It had an initial mortgage rate of 1.75%, which while extremely low, apparently wasn’t good enough for Zuckerberg.
Over the past year, mortgage rates have crept even lower, so it appears as if Mark wanted to take advantage of that drop, despite being the world’s 40th most wealthy individual.
Per Bloomberg, Zuckerberg was able to refinance his mortgage with First Republic Bank, snagging another ARM with an initial interest rate of 1.05%.
This is apparently the minimum rate for the loan, which will become a monthly adjustable ARM tied to the LIBOR, or London Interbank Offered Rate, a widely used mortgage index.
His deal is LIBOR plus 0.8%, which based on today’s rate, puts the loan at 1.05%. Of course, it’s probably going to rise considerably over time, but it’s obviously much cheaper than a 3.5% 30-year fixed-rate mortgage.
And it’s much better than the Freddie Mac 1-year ARM currently pricing at about 2.69%.
So for Zuckerman, it makes a lot of sense to go with an ultra low rate, even if it is an ARM that could adjust much higher.
[Fixed mortgage vs. ARM]
Should You Get a Mortgage Like Mark?
That all depends. First off, you probably won’t be able to get a mortgage like Mark because he’s a high net worth client, and as a result, has access to the very best rates around.
But assuming you could snag the deal he got, you’d still be running the risk of your mortgage rate adjusting a lot higher.
For the record, his mortgage can rise to a maximum rate of 9.95%, so his $19,275 monthly mortgage payment could climb to as high as $52,000.
Clearly that wouldn’t be good for him or anyone that isn’t a billionaire, or even one of the world’s richest individuals.
But Zuckerberg has a huge edge. He can pay his mortgage off in full whenever he so chooses, so he’s got a huge safety net there.
And the fact that he took out an ARM means he thinks (or the smart advisers behind him) mortgage rates will stay depressed for a while longer.
So perhaps it’s a clue that there is more downside expected in rates, or at least no near-term run up.
But it’s much easier for him to take that risk than us.
With limited downside to rates (the lower they go, the less they can fall), it may be in your best interest to lock-in a ridiculously low fixed rate so you can sleep at night, instead of gambling for better.
By the way, President Obama hasn’t refinanced his mortgage in seven years, and is currently stuck with a 5.625% rate on a 30-year fixed.
Source: thetruthaboutmortgage.com