As featured in The Wall Street Journal, Money Magazine, and more!
     

How to Qualify for a 1% APR Mortgage

This article was written by in Real Estate and Home. 12 comments.


While there are great advantages to buying a house with cash, sometimes the benefits of using other people’s money outweigh those advantages. While debt is often rightly characterized as bad for one’s personal finances, there are situations in which it can be less bad.

If you can qualify for a mortgage that starts out at 1.05%, you ought to take advantage of the opportunity.

There’s risk, of course. The low interest rate could be higher when the rate adjusts in three or five years, but if the same conditions that allowed you to qualify for that rate continue, you’ll most likely be treated as favorably when the time for adjustment arrives.

Unfortunately, you probably won’t be able to qualify for an interest rate that low, even on an adjustable-rate mortgage, unless you’re Mark Zuckerberg, literally. The founder and CEO of Facebook just refinanced his mortgage on his $6 million home in Palo Alto, California with First Republic Bank, and was offered a rate of 1.05% to do so.

Unless you have some special qualities, adjustable-rate mortgages operate more like bait and switch. As I’ve seen in the past, up-front interest rates sounds great, and are useful in encouraging customers to consider expensive refinancing, where banks make money today from refinancing fees and later when the teaser rates expire. Average consumers are hit with a major increase in monthly mortgage payments when the rates are recalculated. The rules are different for Mark Zuckerberg.

With the net worth and notoriety the rock star CEO has achieved, he doesn’t need to shop around for mortgages. Banks want his business and are willing to offer favorable terms in order to compete for Zuckerberg’s attention. First Republic Bank doesn’t need to earn money on this mortgage. Just the news that they offered this rate to the CEO of Facebook will give them enough press that other wealthy individuals are likely to seek out this bank’s services.

A loan with an interest rate of 1.05% is practically free money. If you have the opportunity to borrow someone else’s money at that rate in order to finance an investment that has a great chance of beating that rate in terms of income or appreciation, it only makes sense to do it. Mark Zuckerberg’s mansion qualifies in that category. As long as he retains his reputation, his name on the roster of past owners likely increases the property’s value without any help from improvements or market appreciation.

If you want the same advantages Mark Zuckerberg receives, you may want to consider some of these tips. Zuckerberg meets at least some of these conditions.

1. Be an executive or founder at a major corporation. If you can succeed in business without really trying as well as Mark Zuckerberg did by starting a dating website in his college dorm and growing it into one of the biggest companies in the world, banks will be crawling to you on their hands and knees for your business. They’ll want to underwrite your company’s IPO. They’ll want to offer you, personally, products reserved for the elite of the elite.

2. Have a sky-high net worth. In 2009, Mark Zuckerberg’s wealth dropped below $1 billion according to Forbes. He was out of the club, but he showed the world the following year with a net worth of $4 billion. The 2012 list of the richest Americans has not yet been released, but estimates would put his net worth around $16 billion this year, following Facebook’s public stock offering. You don’t have to have $16 billion ready to invest in order to receive preferential treatment from the finance industry. In most cases, $1 billion would be enough — perhaps not enough for a mortgage rate around 1%, but enough for select products.

3. Remain loyal. Banks, in an effort to generate more profit from each well-off customer, reward loyalty. The best terms are reserved for the “best” customers. This is true even at the smaller scale. Even Vanguard, an investment bank for everyman, offers significant discounts for those who invest over a certain amount in their mutual funds. The best expense ratios are reserved for this company’s Admiral Shares. If you have the capability of spending more with a bank, they will offer whatever is possible to encourage loyalty, and then reward that loyalty.

4. Be in the news. If everything you do is being watched by the public, companies will move mountains to work with you. Being identified with a celebrity in the press brings with it free public relations. Mobile Resource Card saw a potential in the Kardashian family when it released a co-branded prepaid debit card. The product was widely panned, and I called it possibly the worst financial product of the year thanks to its fees. The Kardashians, however, were likely paid very well for the association of their brand with the product — at least they would have been if they didn’t later speak out against the card.

If, however, you’re in the news for something more noteworthy than reality television, and if you have a strong reputation, the products you’ll be able to align yourself with will be of a higher quality. Whether these come in the form of spokesperson opportunities or just great terms on products you need, your celebrity status will be a great asset. The asset, however, will be as fleeting as your positive image. Break a few securities laws, murder your spouse, or intentionally damage the environment in an unpopular way, and the preferential treatment will disappear in an instant.

Perhaps you, too, will qualify for a 1% APR adjustable-rate mortgage, assuming you offer the same benefits to the bank as Mark Zuckerberg does.

Photo: Donkey Hotey
Bloomberg, Forbes

Published or updated July 30, 2012. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

Email Email Print Print
avatar
Points: ♦127,535
Rank: Platinum
About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 12 comments… read them below or add one }

avatar SteveDH

5. Be a politician. Remember those sweetheart loans from Countrywide? “Idealism is what precedes experience; cynicism is what follows.” (David T. Wolf)

Reply to this comment

avatar Ceecee ♦53 (Newbie)

Reminds me of why the 99% were out there protesting in the streets. The biggest financial benefits go to those who need them the least. Of course, we all know that this is the situation….we get it. Same is true of the income tax system.

Reply to this comment

avatar Investor Junkie

“From each according to his ability, to each according to his need”. Hmm that sounds familiar..

Reply to this comment

avatar someguy

I belive his loan’s rate is adjustable *monthly*.

I don’t understand why some people get bent out of shape — banks should be able to offer any rate they want to someone with such substantial assets. What are the odds that Zuckerberg defaults and the bank loses their shirt?

Reply to this comment

avatar krantcents

I would refinance my fixed rate mortgage in a heart beat for a 5 year adjustable rate mortgage, if it were 1.05%. My balance is so small I could easily pay it off in less than 5 years. It is similar to Mark Zuckerberg in terms of percentage of net worth, although I do not have the kind of compensating balances he has to leave at the bank.

Reply to this comment

avatar qixx ♦1,895 (Half-Dollar)

Does Zuckerberg have more than the value of the loan at the bank? I’ve seen a credit union that was offering 1% APR reduction if your total assets with them were greater than you total loans. It was a promotion targeted at getting people to move retirement accounts over if i remember correctly. Could be something similar with Zuckerberg. He may have 3 or 4 times the value of the loan with them.

Reply to this comment

avatar Lance @ Money Life and More

The bank obviously did the right thing because I have seen over 10 articles about this story. Unlike the others, yours actually says why he got the loan as opposed to most just stating wow look what Mark got. The bank had to have something in it for them otherwise they wouldn’t have loaned the money so cheaply.

Reply to this comment

avatar Cherleen @ My Personal Finance Journey

1% APR mortgage would have been a great news! Unfortunately, not everybody has similar assets that Zuckerberg has.

Reply to this comment

avatar Investor Junkie

“A loan with an interest rate of 1.05% is practically free money.” So is a fixed 3.50% 30 year fixed rate if you take into account tax deductions and the average rate of inflation for the past 30 years.

In Zuck’s case it can be said the bank is paying him!

Reply to this comment

avatar Elena@save money

1% interest rate on a mortgage is like a dream come true, but I guess those people that can get it do deserve it by working so hard on being successful. My question is why would you even bother getting a loan when you are worth millions, if not billions? I probably would not. Thanks for sharing! Very interesting article!

Reply to this comment

avatar SteveDH

Just speculating here but some (possibly a lot) of the shares he received from the IPO may be restricted. That is to say he has a “can’t be sold before this date” restriction on the shares. Other than that, I can’t think of another good reason for a loan of this kind.

Reply to this comment

avatar Evan

Did the article mention whether the mortgage was for 6 mil or was it for less and the house is worth 6mil? Seems like a very reasonable home value for someone worth a couple billion

Reply to this comment

Leave a Comment

Connect with Facebook

Note: Use your name or a unique handle, not the name of a website or business. No deep links or business URLs are allowed. Spam, including promotional linking to a company website, will be deleted. By submitting your comment you are agreeing to these terms and conditions.

Notify me of followup comments via e-mail. You can also subscribe without commenting.

Previous post:

Next post: