Why Billionaires Like Elon Musk and Mark Zuckerberg Still Take Out Mortgage Loans
Written by
Megan Morrow
Edited by
Chris Cluff
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Why do the wealthiest Americans such as Mark Zuckerberg, Elon Musk, Beyonce and Jay-Z continue to take out mortgages for properties that they could easily purchase outright?
While most homeowners today take out mortgages because they have to get loans to purchase houses, many millionaires and even billionaires choose to do the same. Musk, for instance, made headlines for taking out $61 million in mortgages in 2018 alone. Why on Earth would he take on so much debt in home mortgages?
The short answer is that this simple action provides liquidity and enables the super-rich to invest their wealth in other opportunities where they can potentially make even more money.
Mortgages Are Relatively Affordable
Even when interest rates are higher, a mortgage is a very affordable expense for wealthy homeowners, who can often deduct the interest paid on up to $750,000 of mortgage debt. Likewise, when their riches aren’t mostly tied up in homes, they can use those funds for other endeavors. The ultra-rich find mortgage debt easy to pay and easy to manage.
Mortgages Enable Liquidity
The stock market has averaged 10% returns over its history and, with mortgage rates trending downward, a house loan can free up money for more lucrative investments. When you do the math, it is easy to see that it makes sense to pay about 5% interest on a $2 million mortgage if that same $2 million can net up to 10% interest in alternative investment avenues. A relatively small monthly mortgage can free up funds that will potentially add up to much larger wins.
In addition, other investments are also much easier to buy and sell than mortgages, providing ready-made liquidity for wealthy investors who are always on the lookout for their next financial opportunities.
Why One Millionaire Regrets Paying Off His Mortgage
Millionaire Graham Cochrane, the author of “How To Get Paid for What You Know,” shared his regrets over paying off two mortgages in 2022. While he said that he initially “felt like I was on the right financial track” and was “officially debt free,” he regretted the money move shortly thereafter when he and his wife enrolled their daughters in a school an hour away from their home.
With so much of their wealth in real estate, the couple “felt trapped” and unable to make a move closer to the school.
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What Should Regular Investors Do When It Comes to Mortgages?
Clearly, not everyone can afford a private jet, a multimillion-dollar home (or multiple luxury abodes), and staff to wait on their every need. You might be wondering whether you should forgo a mortgage if you have the ability to pay for your next home in cash.
In this case, you could take a cue from the Zuckerbergs and Musks of the world and take out that mortgage so that you too can use those funds to make bigger and better investments. It is always smart to talk with your financial advisor ahead of time about your specific financial goals, potential retirement dates and the inheritance you might want to leave for the next generation.
As mortgage rates drop, it likely makes even more sense to use those funds for investments in stocks and mutual funds. The median home price now exceeds $412,000, according to the St. Louis Fed. If you have more than $400,000 to invest, take a look at the long-term potential of this sum.
Nevertheless, some people simply find peace of mind from paying off their mortgages and owning their houses free and clear. If this is the case, then the emotional payoff of not having a mortgage might be worth the potential losses in investment income. You also can look into 15-year mortgages for a faster payoff process.
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