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Zuckerberg's Mortgage Rate is Now 1.05%

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By Andrew Lu on July 18, 2012 6:57 AM

Perhaps more astonishing than Mark Zuckerberg refinancing a 1.05% home mortgage rate is the fact that the 40th richest man in the world needed a mortgage at all.

After all, why would someone worth over $15 billion need to borrow money to pay off a $7 million home?

Well, if you can borrow money at 1.05%, you're basically borrowing money for free, reports Bloomberg.

So Zuckerberg would be dumb not to.

Zuckerberg bought his Palo Alto house last year and took out an adjustable-rate mortgage for $5.95 million, reports Bloomberg. An adjustable-rate mortgage (ARM) is a loan that's interest rate can rise or fall given market conditions. ARMs are usually contrasted with a fixed-rate loan where the interest rate never fluctuates.

The benefits of an ARM are that the interest rates can be lower than a fixed-rate loan -- as evidenced by Zuckerberg's 1.05% rate. However, should the housing market unexpectedly heat up, the cost for borrowing money can increase, causing ARM rates to skyrocket.

For most borrowers, this can be a problem, as that 1.05% loan can become a 6% or 7% loan. In fact, ARM rates skyrocketing is a frequently-cited reason for foreclosures during the past several years.

However, for borrowers who have lots of money, the adjusting interest rate of an ARM poses little risk as the borrower can simply pay off the loan when the interest rate is no longer favorable. For example, if interest rates creep up, Zuckerberg could simply pay off the loan with his cash on hand.

While Mark Zuckerberg's mortgage rate may be an example of the rich getting richer, the fact is that Zuckerberg is a near-zero risk to banks. His lenders are assured a return regardless of what the market does. The same can't be said for most every other borrower.

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