Facebook CEO Mark Zuckerberg is so rich that the cost of living in his $5.95 million Palo Alto home is essentially $0.
That's to say: free.Zuckerberg just re-financed his home with a 30-year adjustable-rate loan starting at 1.05 percent, according to Bloomberg's John Gittelsohn and Dakin Campbell.
Because 1.05 percent is below the current rate of inflation – somewhere between 2 and 3 percent – Zuckerberg is essentially "borrowing for free," Greg McBride, senior financial analyst with Bankrate Inc, tells Bloomberg.
Zuckerberg is taking the mortage 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.
Zuckerberg still pays the bank something every month: the principal 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 turn a profit.
(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.)
Zuckerberg gets such a nice rate because he took an "adjustable rate," which means the bank can crank it up if it wants.
Bloomberg says the average rate for a 30-year fixed low is 3.56 percent. Meanwhile, the average rate for a one-year adjustable loan is 2.69 percent.
Zuckerberg's rate beats that figure because his bank, First Republic, figures he's good for the money; he is the world's 40th richest person, after all.
“First Republic, like most banks, prices its credit products based on the strength and totality of the entire client relationship,” a bank spokesperson told Bloomberg. “This is our approach with all of our clients.”
Update: An earlier version of this story didn't properly explain how paying the principal is paying money Zuckerberg would be able to get back in case he sold.
ABOUT MUZAMMIL SETHI
