Why does billionaire Mark Zuckerberg need a loan?

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Jul 18, 2012 - PropertyGuru.com.sg

Facebook founder Mark Zuckerberg (pictured) recently refinanced his Palo Alto home near the company’s headquarters with a 30-year 1.05 percent adjustable mortgage rate.

This has left many wondering why a billionaire such as himself, valued at around $15.6 billion (S$19.67 billion), would take out a loan for a US$5.95 million (S$7.5 million) house when he can buy it outright.

According to analysts, this is because US mortgage rates are at historical lows and Zuckerberg’s loan costs absolutely nothing.

“When you borrow at an interest rate that’s below the rate of inflation, you’re essentially borrowing for free,” said Greg McBride, Senior Analyst at mortgage tracker Bankrate.com.

“When you can borrow for free, there’s no sense in tying up your own money, when you can use that money for more profitable things,” he added.

Zuckerberg’s low rate is due to the fact that his mortgage is adjustable, so the interest rate could go up. While these types of loans usually have lower interest, they are reserved for borrowers with zero risk.

“This is a product reserved for celebrities,” McBride said. “They aren’t necessarily billionaires. We’re talking about people who are millionaires, at least – corporate executives, wealthy people.”