President Donald Trumpâ€™s recent decision to pay off a $1.2 million loan on a home he owns in Palm Beach raises an intriguing question — namely, why would a billionaire bother with a relatively tiny mortgage?
True, Trump was in a tough financial spot back in 1994, when he took the 25-year mortgage from Merrill Lynch Credit Corp. But Trump kept the loan even as his finances rebounded nicely.
In general, titans of industry donâ€™t bother with mortgages on their homes. But there are exceptions. When beer billionaire Jude Reyes paid $28 million for an oceanfront mansion in Lost Tree Village last year, he borrowed $20.8 million.
Reyes took the adjustable-rate loan at a rock-bottom interest rate of 2.375 percent, but he had to shell out $72,800 in Florida documentary stamp taxes, among other costs, to open the loan.
Trumpâ€™s mortgage was on the home at 1094 S. Ocean Blvd., just north of the Mar-a-Lago Club. The adjustable-rate loan had a starting interest rate of 4.75 percent. The final payment was due in 2019, but Trump retired the mortgage in June, according to public records.
Unlike the masses, who take mortgages by necessity, deep-pocketed homeowners look for investment opportunities when mortgage rates are low. They use the bankâ€™s money to pursue a better return by investing it.
â€œPeople who are very wealthy will take the mortgage and leverage the money,â€� said Jim Flood, a loan officer at Supreme Lending in Plantation. â€œEuropean equities are up 20 percent, so thatâ€™s a better investment than a house right now.â€�
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