Being wealthy means never having to think about mortgage payments ever again, right?
Well, it turns out even the rich and famous use a little financing, sometimes. The only difference is that, for them, it’s a choice.
Taking out a mortgage can be a smart financial move, even if you have the cash to buy a home outright. And that’s doubly true today, when mortgage rates are hovering near record lows.
The examples of a few celebrity borrowers show how home loans can help the rich get richer. You also might use a home loan to build wealth.
Mortgages of the rich and famous
Think your mortgage payments are high? Just imagine how much celebrities are paying for loans on their mansions.
Check out these familiar names:
The Tesla dynamo runs neck-at-neck with fellow mega-billionaire Jeff Bezos for the world’s wealthiest person, but just last year he took out $61 million in mortgages to buy up five California homes.
His monthly payments must feel like flipping a penny into a fountain — his estimated net worth sits at $182 billion today.
Meghan Markle and Prince Harry
You may have already heard that Meghan and the prince landed in a $14.6 million home in Santa Barbara, California. But did you hear the former royals obtained a $9 million mortgage for their new digs? So says Variety.
If they got a 30-year loan like us commoners, we’re talking monthly payments approaching $50,000.
Beyoncé and Jay Z
This musical duo is known to borrow tens of millions of dollars for luxury home purchases.
Public records show the couple financing their $88 million mansion in Bel-Air with a $52.8 million mortgage from Goldman Sachs, The Wall Street Journal reports.
Of course, you always want to make your monthly mortgage payments, even if you’re a famous celebrity.
Sheen sold his Beverly Hills mansion for a big loss, two years after facing foreclosure for reportedly owing more than $80,000 in back mortgage payments.
The actor was forced to lower the asking price five times before it finally sold, People reports.
Why take out a mortgage when you have the cash?
Well-to-do actors, musicians and sports stars often have the cash on hand to match just about any asking price. So why pay all that interest if you don’t have to?
Simply put, borrowing money for a home allows you to use your cash for other things. The Hollywood lifestyle has many demands, after all, and those designer clothes and sports cars aren’t cheap.
Savvy celebs, however, use more of their available millions to invest. The expected returns on many types of investments can be much greater than the interest paid on a mortgage, especially when mortgage rates are as low as they are right now.
So if Beyoncé and Jay Z are paying an initial fixed rate of 3.4%, as The Wall Street Journal suggests, the Crazy In Love couple would come out ahead by putting their money in a mutual fund that earns even 4% a year.
Can ordinary people use the same strategy?
The same thinking works just fine for regular folks, although you’ll probably be investing with hundreds or maybe thousands, rather than millions.
Now may be a better time than ever before. Although it might be tempting to wait to see whether mortgage rates drop even lower, trying to “time the market” can cost you. Rates have been in flux amid the inauguration of President Joe Biden.
Low rates can also help current homeowners: If you refinance now, you could slash your monthly payments substantially and invest the difference.
Some 19.4 million homeowners have loans that are worth refinancing and could each save an average $308 per month, the mortgage data firm Black Knight reported. Good refinance candidates include those with solid credit scores and at least 20% equity in their homes.
You’ll land the best rate by shopping around; borrowers who get five rate quotes save an average of $3,000 more than those who get just one quote, a Freddie Mac study found.
Once you’ve pocketed a nice discount, you can take your cues from Hollywood borrowers and invest some of those savings. Make it simple with the help of a robo-advisor, or take a crack at some no-fee investing on your own.
Original posted at finance.yahoo.com