Here's Why Billionaires Like Jay-Z and Mark Zuckerberg Get Mortgages They Don't Need

Meta Platforms CEO Mark Zuckerberg reportedly secured a 30-year mortgage in 2012 at an interest rate just above 1%. However, he already had amassed a fortune of £12.63 billion ($16.9 billion) by that time.

Meanwhile, Jay-Z and Beyonce bought a £65.78 million ($88 million) mansion and took out a £39.47 million ($52.8 million) mortgage at 3.15%. While they could have paid it in full, the star couple had over £37.38 million ($50 million) in free cash to invest somewhere more profitable.

Let's assume they pay almost £21.68 million ($29 million) in interest over 30 years, bringing the total amount repaid on the mortgage to over £60.55 million ($81 million). However, investing the $52.8 million, for instance, in the S&P 500 for an 8% annual return compounded over three decades would generate a corpus of a staggering £396.98 million ($531 million).

Billionaires take out multi-decade mortgages to maintain adequate cash flow at all times. Taking out a mortgage rather than investing a good chunk of their personal wealth to buy an asset helps the ultra-wealthy keep their cash free. Many invest in businesses and ventures, often those that generate passive income streams and grow their net worth through value appreciation.

Hence, billionaires focus more on keeping capital ready for market opportunities rather than thinking about whether they can afford a property or other assets. Individuals like Zuckerberg would rather borrow money at cheap interest rates than drain millions in cash to buy an asset outright.

Borrowing against properties can be attributed to the belief that borrowed money can generate higher returns when invested in an emerging startup or a different asset class based on market trends.

However, the financial system is not the same for everyone because billionaires can secure financing terms that are unavailable to the common people. Most would think of a mortgage as debt to pay off, but the rich use the facility as a tool to increase their long-term returns. While cash flow is among the top reasons for billionaires taking out mortgages, factors like tax benefits also come into play.

Tax Benefits and Hedging Inflation

Interest payments on a mortgage can often be deducted from annual taxable income up to a certain limit. The 2017 Tax Cuts and Jobs Act lowered the cap on deductible mortgage interest to £560,709 ($750,000) for new loans, but it is still a significant amount, which can help the ultra-rich lower the cost of having a mortgage.

Furthermore, mortgage interest payments on second homes or investment properties could be deductible based on how they are structured.

Mortgages with fixed rates also enable high-net-worth individuals to hedge inflation in the long run.

The real value of a £3.73 million ($5 million) debt today will shrink in value if inflation continues to rise over the next decade. At the same time, assets like properties are most likely to increase in nominal value during that period. In simple terms, wealthy people are repaying the loan with 'cheaper' dollars over time, which is why many of them view long-term fixed-rate debt as a smart tool, which they can utilise in low-interest-rate environments as inflation slowly diminishes money's real value over time.