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Mark Zuckerberg's 1.05% mortgage rate

An adjustable-rate loan is good for the Facebook founder, but most borrowers today should prefer a fixed rate.

By MSN Money Partner Jul 17, 2012 10:55AM

This post comes from Jack Hough at partner site SmartMoney.


SmartMoney on MSN MoneyMark Zuckerberg uses an adjustable-rate mortgage. Should you? Probably not.


When the billionaire Facebook founder refinanced his mortgage with First Republic Bank earlier this year, he scored an adjustable-rate loan that started with a 1.05% rate in May, according to Bloomberg. The rate resets monthly and is equal to the London Interbank Offered Rate, or Libor, plus 0.8 percentage point. The one-month Libor rate was recently 0.25%. (Post continues below.)

By one measure, the loan is so cheap that Zuckerberg is making money on it. The inflation rate was 1.7% over the year through May, according to the Labor Department. That's a modest rate by historical standards, but nonetheless, it's high enough to suggest that the dollars Zuckerberg owes are losing value faster than his loan is accruing interest.


Mark Zuckerberg, courtesy Bloomberg News for The Wall Street JournalA one-month adjustable-rate mortgage is a niche product available only to the wealthy, says Greg McBride, a senior financial analyst at But one-year ARMs are common enough that rates for them are tracked by mortgage specialist Freddie Mac. The latest rate is 2.69% -- safely above the inflation rate.


So how did Zuckerberg score such a low rate? By posing near-zero credit risk. First Republic currently pays little to attract deposits. Its latest published rate for a three-month certificate of deposit is just 0.05%. With funds that it doesn't use for conventional lending, it can invest with negligible credit risk by buying, say, U.S. Treasury bills. But three-month ones recently paid just 0.06%.


For Treasury-like safety with a much higher return, the bank can instead make a collateralized loan of just under $6 million to someone who is worth nearly $16 billion, which is what it did. Zuckerberg may be making money on his loan after inflation, but so is First Republic, considering how cheaply it can raise money from its depositors.


For homebuyers who would have to pay mortgage rates closer to national averages, ARMs don't hold much appeal at the moment. Their rates have fallen more slowly of late than those of fixed-rate mortgages. The 30-year fixed mortgage rate recently averaged a record low of 3.56%, down nearly a full percentage point from 4.51% a year ago. That 2.69% rate on a one-year ARM, meanwhile, has fallen by only about one-quarter of a percentage point, from 2.95% a year ago.


Also, ARMs save borrowers less cash than they have in the past. The difference between the one-year ARM rate and the 30-year fixed rate is just 0.87 percentage points. Over the past 20 years, it has averaged 1.61 percentage points.

That's a minimal savings compared with the added risk of a rise in interest rates from current lows during the next 30 years. The only kind of borrower who doesn't have to worry about such a thing is one who has enough money to pay his loan in full whenever he pleases. It also helps if he, like Zuckerberg, can negotiate a rate that is safely below the inflation rate. Those who are borrowing because they need the money, meanwhile, should stick with fixed rates.


More on SmartMoney and MSN Money:

Jul 17, 2012 12:20PM
Is anyone else wondering why MZ didn't just pay for the house straight out?
Jul 18, 2012 9:30AM
Why is a billionare paying a mortgage?
Jul 17, 2012 7:55PM
The real question ... why did he need a loan?
Jul 17, 2012 4:05PM
Only the 1% percent gets what they want. The rest of the 99% gets screwed.
Jul 17, 2012 5:25PM
Question , why would a billionaire need a mortgage ?
Jul 17, 2012 8:03PM
Why the eff does this putz even need a mortgage. Isn't that like a few hours work for him?
Jul 18, 2012 1:20PM
This comment system is getting so filled with dating spam that it is becoming unusable. 
Are you listening MSN?

Jul 17, 2012 7:42PM

This is so typical of what's going on in the USA today.  The individuals suffering the most pay the highest interest rates.  We should be ashamed!


Jul 17, 2012 7:09PM

None of this would be possible, of course, without the Fed manipulating interest rates for major banks to zero thus effectively transferring wealth from savers to……oh, I get it.

Welcome to the new trickle up economy.

Jul 17, 2012 8:14PM
Why is this news-worthy.  Rub my nose in the fact that he can afford to shop around for a re-fi.  Screw him.
Jul 17, 2012 7:27PM
If he took out an interest-only ARM he could write off all his payments when he files his taxes, and therefore make MORE money off his loan.

Definitely time to reform the tax system
Jul 18, 2012 11:23AM
When did this become a dating site ?   F--K.   & i am living in a van down by the river, no electricity, no bills!  even though i worked HARD construction 42 years. i have nothing - and couldnt get a loan to buy a stamp.
Jul 17, 2012 7:24PM
Wow...the rich and the government getting 1% loan interest rates....I'm sure the rest of us will be able to get those rates.  I'm running off to my bank right now.  This is a bunch of BS.  It is amazing that this continues when so many have financial issues.  It just goes to show they do not care what the population thinks and how the rules are balanced against most.  Thanks for another slap in the face from the financial institutions.
Jul 17, 2012 5:10PM
Yes I get it he makes money off of the 5,000,000 they've loaned him for just 1% this year.  However with just under 1.5 billion in liquid why even bother playing this game and paying the financiing fees year after year?  Talk about jewrich!!!  Zucks just cause you can make a buck doesn;t mean you have to squeeze every last one out.  I'm betting a "friend" who happens to be a loan specialist "helped" you out with this one so he can bank some fees year after year on you. 
Jul 17, 2012 7:03PM
i just find it amazing that a guy is the richest 40 on the planet.... because he made a stupid chat webiste... lol... wow as if he deserves that much? wasnt like he made the cure for cancer.. yep lets just keep on giving the people who dont help society billions of dollars and people who help get left in the dust.... retards
Jul 18, 2012 1:19PM
Why in the world would he need a mortgage?? He can just buy any house outright with cash. I don't get it.
Jul 17, 2012 7:47PM

Ok .. i am well off a 1%er  .. NOTHING like Zuckerberg of course and i NEVER get a loan when i can pay cash.


This guy is worth billions and get a loan for a house ... Makes NO SENSE.

Jul 17, 2012 5:18PM

It's Only Money,

No matter how one cuts the cake ... the uber-rich always have options as well as optional ways to protect their wealth and to take advantage of the loopholes and nuances of financial markets. Pretty nice work if you can get it.



Jul 18, 2012 1:53PM
MSN, an ISP, cannot control spam on its own page. Way to go Microsoft.
Jul 17, 2012 4:42PM
Why would he finance it to begin with?  Pocket change for him.
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