Most of us probably don’t have all that much in common with Facebook founder and CEO Mark Zuckerberg, but there’s one thing he has that the general public might be surprised by. Even billionaires like Zuckerberg have mortgages.
Zuckerberg refinanced his $5.95 million Palo Alto, California, estate in 2012 into a 30-year adjustable rate mortgage at an interest rate of just 1.05%.
Zuckerberg can clearly afford to just pay cash for any property he wants. As of the time of this writing, Forbes places the social media mogul’s net worth at $52.1 billion. Why would he want a mortgage? There might be a couple of reasons, but the first is financial flexibility.
Even if you’re not Mark Zuckerberg, mortgage rates are extraordinarily low right now. Admittedly, his case is an extreme example. He was able to get that rate for a couple of reasons: He was subjecting himself to the potential for monthly rate adjustments and his wealth makes it likely that he’ll make his monthly payments.
Still, there’s no reason to think you can’t get a fixed rate in the high 3% range, for example. Let’s assume that you don’t have the tech billionaire’s money but that you’ve done pretty well for yourself. You could spend $300,000 out of pocket for a new house, but perhaps you would rather keep most of your money for yourself to do what you will with it. That way, your assets have more liquidity and can be moved around as you wish, rather than being tied up in your house.
Instead, you can make a significant down payment of 20% or more. This will help you both avoid mortgage insurance payments and get a great rate. The more you have initially invested in the house, the less risky you seem to lenders and investors. When the loan closes, you make relatively low-interest monthly payments.
If you don’t spend that $300,000 upfront on the house, you can keep it invested in stocks, bonds, etc. – the world is your oyster. If nothing else, investing in a mortgage rather than spending money up front can give financial peace of mind.
Besides the opportunity for inexpensive financing and the financial flexibility that comes with it, you have one other advantage, something billionaires with multimillion-dollar houses can’t claim.
If you get a mortgage, odds are you’ll be able to deduct your mortgage interest payments from your taxes. Via the home mortgage interest deduction, the IRS allows you to deduct the mortgage interest on your primary and second or vacation home.
The other really cool thing is that you’re getting a benefit not available to those enjoying the lifestyles of the rich and famous. That’s because the combined limit on the mortgage for your primary and vacation home is $1 million in order to deduct interest ($500,000 if married and filing separately). These limits apply if you’re purchasing a home or taking cash out to improve it. If you’re refinancing to improve your rate or change your term, the limit is $100,000 ($50,000 if married filing separately). There are also some market value restrictions.
Convinced? If you’re looking to get started, you can apply online through Rocket Mortgage.
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