(TheNicheReport) -- Facebook founder and CEO Mark Zuckerberg reportedly pays a little over one percent annual percentage rate (APR) on a 30 year mortgage on his five-bedroom Palo Alto estate, valued at approximately $7 million. How did he manage to get such a low rate?
Average mortgage rates in the United States are currently at some of their lowest levels, at least since after World War II. This has been the situation for more than a year thanks to the efforts of the Federal Reserve Bank to keep rates low in order to stimulate lending and economic recovery. Americans have been trying to take advantage of these low rates by signing scores of refinance applications, but a strict credit and underwriting environment has prevented most of them from getting to the closing table. That is not the case with Mr. Zuckerberg, who refinanced his $5.9 million mortgage to a lending product that adjusts monthly based on the London Interbank Offered Rate (LIBOR).
Mr. Zuckerberg may be enjoying a low APR for now, but that monthly rate could shoot up to almost 10 percent according to the terms of his mortgage. The Facebook CEO is clearly enjoying a low APR at this time thanks to an Adjustable Rate Mortgage (ARM), but that could drastically change from one month to another. The lender that holds the mortgage on Mr. Zuckerberg’s home is able to take on additional risk as well, but should the LIBOR rate suddenly increase, Mr. Zuckerberg would undoubtedly be able to cover the monthly increase and even refinance into a more stable mortgage.
While not too many borrowers may qualify for a super jumbo loan like Mark Zuckerberg’s, some lenders are offering APRs as low as 2.4 percent on a 3/1 ARM for qualified applicants with excellent credit histories, solid work histories, low debt-to-income ratios, and comfortable loan-to-value proportions. In fact, average borrowers may be able to get better deals than Mr. Zuckerberg on fixed-rate conforming mortgage products that can be guaranteed by Fannie Mae or Freddie Mac.
With non-conforming mortgage products like super jumbo loans, lenders tend to price their APR higher because they take on higher risk. A fixed-rate home loan on Mr. Zuckerberg’s Palo Alto mansion may carry an APR of 4 percent or higher, even though he could conceivably settle the principal balance on his mortgage with a lump sum payment.