Facebook CEO Mark Zuckerberg Refinances Mortgage Loan Down to 1%

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Mortgage rates have fallen to record lows. But if you're in the market for a home loan, you're going to have a tough time matching the deal that Facebook founder and CEO Mark Zuckerberg got on his mortgage.

Like millions of Americans have done in recent years, Zuckerberg decided to refinance his mortgage. But according to Bloomberg, the rate he got was amazing low: just 1.05 percent.

How did he do it? And can non-moguls get a similar deal?

Taking a Monthly Gamble

The key to understanding why Zuckerberg got such a great deal on his mortgage is that he didn't get a conventional fixed mortgage. Rather, he decided to refinance his $5.95 million loan on his Palo Alto, Calif., home with an adjustable-rate mortgage.

Adjustable-rate mortgages, or ARMs, got a lot of notoriety during the housing boom. With lower interest rates, ARMs helped many homebuyers afford high-priced homes, because they often offered low teaser rates for an initial period of time. But after that teaser rate went away, borrowers were stuck making higher monthly payments, which many blame for what eventually cracked the housing bubble.

Even so, the average ARM, which locks in rates for one year at a time, carries a rate of 2.7 percent. What helped Zuckerberg get an even lower rate was his willingness to accept monthly resets of his interest rate. That means his monthly payments could rise as soon as August.

Despite that theoretical risk, few people expect interest rates to rise anytime soon. The Federal Reserve has said that it plans to keep rates low at least for the next couple of years, and many analysts expect an even longer period of low rates.

That said, there's not much downside to the Facebook founder even if the Fed raises rates. That's because Zuckerberg has a huge reserve of wealth behind his loan. Unlike most homeowners, he can simply sell assets and pay off his mortgage loan if the interest rate on his loan suddenly skyrockets.

How the Rest of Us Should Play the ARMs Race

The trend that most homeowners have followed recently is to get rid of adjustable-rate mortgages in favor of fixed loans. With average rates on 15-year mortgages at 2.86 percent and 30-year mortgages fetching 3.56 percent, ordinary homeowners don't get much benefit from taking on the risk of an adjustable-rate mortgage.

Despite Zuckerberg's cheap rate, trying to follow in his footsteps isn't a smart idea for most homeowners. Refinancing to a fixed-rate mortgage will help you lock in affordable, predictable payments no matter what happens to interest rates in the future.

You can follow Motley Fool contributor Dan Caplinger on Twitter here. The Motley Fool owns shares of Facebook.

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Where Generation Y Should Be Looking to Live
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Facebook CEO Mark Zuckerberg Refinances Mortgage Loan Down to 1%

This community some 70 miles east of Atlanta is home to the 34,700-student University of Georgia, which provides Gen Y-friendly nightlife and cultural activities.

R.E.M. and the B-52s got their starts in Athens, and Rolling Stone magazine dubbed the 115,000-population city's clubs the "No. 1 College Music Scene" in 2003.

Read more at TheStreet.com.

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Reynolds lived in Dallas for part of her 20s and says she "really enjoyed it. There are lots of cultural activities, really great nightlife -- and the barbecue in Dallas can beat anything."

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Arizona's capital and largest city, Phoenix and surrounding communities host the four-campus Arizona State University -- whose 70,400 students make it America's biggest institution of higher learning. 

"Phoenix is such a big university town that you know the nightlife for millennials is very attractive," Reynolds says.

The 4.2 million-population metro area is also a sports lover's paradise, with the Arizona Cardinals football team, Phoenix Suns basketball franchise, Arizona Diamondbacks baseball club and Phoenix Coyotes hockey team all calling the city home.

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Photo: Flickr/humbertomoreno

The Steel City gets the nod for its affordability, good universities and spectator sports.

"Pro sports are practically a religion in Pittsburgh," Reynolds says. "Millennials who like them are really going to go for living there."

Pittsburgh hosts the stories Steelers football franchise, Pirates baseball team and Penguins hockey club.

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Photo: Flickr/dnhoshor

Florida's state capital offers Gen Y'ers a modest 7.2% jobless rate and low-cost housing -- $787 a month average rents and $159,000 median home prices.

And as home to the 40,400-student Florida State University, Tallahassee has plenty of educational opportunities and lots of youth-oriented nightclubs.

Read more at TheStreet.com.

Photo: Flickr/Justin Brockie

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