Facebook founder Mark ZuckerbergÂ is worth $53 billion, according to Forbes.
HeÂ did not pay cash for his home.
Zuckerberg and other mega-rich Americans donâ€™t need mortgages to buy homes -- so why do they have them?
Home loansÂ come with advantages that can benefit rich people, poor people, and the rest in between.
These are the proven advantages of carrying a mortgage, even if you don't need one.Click to see today's rates (Feb 22nd, 2017)
Economists say that every investment or purchase you make comes with an opportunity cost.
Using your savings to buy a house -- or making a large downpayment -- means you canâ€™t also use it to invest in stocks, buy boats or take trips. Wealthy people tend not to keep a lot of money in their checking accounts, earning virtually nothing.
They didnâ€™t get rich by passing up opportunities to make their money work for them.
If long-term investing in the stock market nets an average of over 11 percent per year (and it does, according to MarketWatch)Â why would you take money out of it to buy a house.
Current mortgage rates are under four percent. You couldÂ pocket the difference.Click to see today's rates (Feb 22nd, 2017)
Thatâ€™s where mortgages come in. By borrowing instead of paying cash, you can have your house and maintain control over your money as well.
For those who are not ultra-wealthy, the mortgage advantage remains. The typical homeownerÂ may not have the same investment opportunities as Bill Gates (net worth: $78 billion). But opportunity cost applies to anyone with debt, too.
As of this writing, the average credit card interest rate in the U.S. is over 15 percent. So why would you use your cash to buy a home or pre-pay your mortgage balance if youâ€™ve got credit card or other expensive debt? Use your cheap mortgage to buy your house and pay off debt with your cash.
The same logic applies when determining how much to put down on your home purchase.
It might make more sense to go with an 80/10/10 mortgage, putting ten percent downpayment and opening a line of credit for another ten percent, instead of coming up with 20% in cash.
In fact, this is a classic example of when making the "full" 20% downpayment is not in your best interests.
Assume a $100,000 home price, andÂ $10,000 in credit card debt.
You could open aÂ second mortgage at the following terms to buy the home at the following terms.
If you opt to make a 20% downpayment, here's what you would pay for the credit card debt.
You don't have to make millions to save big with a mortgage.Click to see today's rates (Feb 22nd, 2017)
If you make a modest income, you have more opportunities to save money with a mortgage.
Homeowners with incomes less than $250,000 could beÂ eligible for the mortgage interest deduction.
This benefit allows many homeowners to reduce theirÂ taxable income by the amount paid in interest each year. Check with your tax advisor before filing, as this is not meant to be tax advice, but that could make your "real" mortgage payment even more affordable.
The typical homeowner can learn something else from wealthy mortgage borrowers: the benefits of an adjustable rate mortgage (ARM). Mr. Zuckerberg refinanced his mortgage a few years ago, trading in a 1.75 percent adjustable rate mortgage for a 1.0 percent ARM.
ARMs allow you to pay a lower interest rate, and when the sums involved are huge, that lower rate translates into big savings.
For example, a $2 million 3-year ARM at 2.375 percent saves the buyer $1,000 per month over a 30-year-fixed loan at 3.30 percent. During the first three years of the loan, thatâ€™s nearly forty thousand dollars.
So should you jump into an ARM? Some home buyers should seriously consider it.
But, the difference between a regular earner and the ultra-wealthy is this: if rates rise, they can pull money from another investment and retire an expensive home loan.Click to see today's rates (Feb 22nd, 2017)
You donâ€™t have to be rich to make smart mortgage decisions. Hereâ€™s what every borrower should consider when they finance a home.
Measure the cost of mortgage financing against other uses for your money.
Don't carry expensive debt or pull out of an excellent investment opportunity to make a big downpayment, or to pay off a home. Use low mortgage rates toÂ free up money.
Mortgage interestÂ is typically the biggest deduction homeowners take each year. According to online calculators, a homeowner with a $250,000 mortgage at four percent interest can save $45,000Â in taxes over the life of the loan. Check with your tax advisor before filing, but carrying a mortgage could lead to big tax savings.
Have an exit strategy if you go for a riskier loan. For example, a 5-year ARM might make perfect sense if you plan to sell or refinance in five or six years.
Emotion has no place in borrowing decisions. They are just numbers -- evaluate them or have an accountant help you, and then choose your loan.
The rich consider mortgages just another part of their investment portfolio -- a way to make or keep more money. If you want a bigger balance in your own bank account, take a cue from these savvy investors.
Rates are low, making it a good time to take on a mortgage, even if you don't absolutely need one.
Get a quote and see how low your interest rate can be. A social security number is not required to get started, and all quotes come with access to your live credit scores.Click to see today's rates (Feb 22nd, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Felicia M. Law Enforcement
The Mortgage Reports has been a valuable asset to me. I love that each topic is fully explained in terms that can be easily understood. I've learned more from this web site than from any first-time buyer education class.
Sandi C. Customer Service Representative
The Mortgage Reports has been extremely helpful in educating me about mortgages, and what is available. Thank you for all that you do!
Theresa D. President, Title Services
The Mortgage Reports gives me an overview of what's happening with mortgages both locally and nationally. I really enjoy it.
2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)