Facebook CEO Mark Zuckerberg is so rich that the cost of living in his $5.95 million Palo Alto home is essentially free according to an article in Business Insider.
Zuckerberg just re-financed his home with a 30-year vaiable rate loan starting at 1.05 percent, according to Bloomberg’s John Gittelsohn and Dakin Campbell.
Because 1.05 per cent is below the current rate of inflation – somewhere between 2 and 3 per cent – Zuckerberg is essentially “borrowing for free.
Zuckerberg is taking the mortgage because the interest rate is so low that he can invest the cash he would have spent on the house, risk-free, and get a higher rate of return than the rate at which he is borrowing. He took a variable rate mortgage so obviously the bank can crank it up if it wants.
Zuckerberg still pays the bank something every month: the principle on his loan. But that’s not really a cost: he’s getting equity in his home. He’s putting money into a piggy bank. If he ever sold his house, he’d get all that money back, and the amount of money he spent on living in the house would be close to zero.
If anything, he would probably make a profit.
Of course if the Palo Alto real estate market suddenly tanked, that home equity wouldn’t be worth as much and Zuckerberg would be taking a net loss.
Just out of interest the average rate for a 30-year fixed loan in the US is 3.56 percent. Meanwhile, the average rate for a one-year vaiable loan is 2.69 percent.
Zuckerberg’s rate beats that figure because his bank, First Republic, figures he’s good for the money. After all, he is the world’s 40th richest person.
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