Question for Realtors and/or Rich DUers:

[Mayberry Machiavelli]

When people purchase very costly homes (I will arbitrarily use the cutoff of 2 million dollars and up), do most pay cash? What percentage of them, roughly, take out a mortgage, and do such megadollar mortgages have similar terms to a 20-30 year fixed rate that "the rest of us" take out, or do banks usually insist on much shorter term mortgages for such loans?

[NNN0LHI]

1. My suspicion is that people in that range pay little or no interest

Just like I have been told a doctor or a lawyer can go buy a new car for less than any of us can.

I got no proof just my suspicions.

Don

[Nimrod2005]

3. There is a tax benefit to paying interest.....nt

[never_get_over_it]

25. Well yes and no

I have had this discussion with my sister. I am of the belief that the sooner you pay off your mortgage the better off you are. Her answer - but you get a tax break for the interest you pay - well yes you do but for example - one year I got 3K back in taxes but paid 9K in interest (I actually don't remember if those are the exact numbers but close) - so you see if I didn't have a mortgage I'd be ahead 6K....but of course the tax break is a good thing because not many folks can pay cash for their homes - my point is just make an extra payment here and there and finance for 15 years instead of 30 and you'll save interest money in the long run even with the tax break...

Botton line is you'll always pay more interest than the tax break so its just a matter of who gets the money - the lender or the government....

[patcox2]

8. You'll be glad to know that the rich usually pay more than we do.

They get ripped off big time on cars, that I can attest to; the average markup on a new big ticket vehicle can be $10,000, whereas $500 is a lot for an average car.

There is much more price competition at the lower end than at the upper end.

In addition, many rich people hate haggling or feel its beneath them. And some overpay just because things have no value to them unless they are expensive.

They do get better rates on financing and financial products, though, because they are usually more savvy. And marginal add-on costs are a lesser percentage of their expenditures (transaction costs).

[NNN0LHI]

12. I worked at an automobile manufacturing plant and seen my doctor there

I asked one of the white collar guys what he was doing there and he said he was picking up his new car. The guy said there was some kind of program where professional people could purchase their cars directly through the plant at a discount rate without going through a dealer.

I never seen no papers or proof of that but thats what I seen and was told about twenty years ago.

:shrug:

Don

[cornermouse]

13. I've been told that some of them go out and pay cash for their

new car. That would mean no interest, I believe.

[SCantiGOP]

19. no tax advantage

No tax advantage to paying interest on a car, so pay cash if you can. There is a considerable tax advantage to home mortgage interest, so you would be crazy to pay cash. And, anyone can buy a vehicle straight from the plant, not just rich doctors.

[Solo_in_MD]

21. the better your credit scores, the lower your rate

since interest charged has a risk component to it. Its not job related.

[Nimrod2005]

2. Same as all mortgages, and no, not too many people pay cash

It works the same way it does for the rest of the people. The only nice thing about having tons of money to afford a house like that, is that you can go pay it off whenever you like, otherwise people carry mortgages.

[patcox2]

4. Its usually advantageous to take out a mortgage.

It all comes down to a "time value of money" calculation. Depends on interest rates and returns on investment and tax considerations, but generally a stream of payments is preferable to tying up that much capital.

[DURHAM D]

5. Two of my friends just bought very expensive homes -

they got the money from the family trusts.

[Robbien]

6. They get special rate mortgages

Usually the wealthy are led through the whole process by a specialist who manages high end customers. They are given good rates and terms, much better than the average Joe.

[GumboYaYa]

7. ???????

I'm not sure that is correct. Most Jumbo Mortgages carry higher rates, if I am not mistaken.

[Mayberry Machiavelli]

10. Ya I'd think they'd want more interest if the buyer didn't pay cash... I

guess I just assume there's a lot more at risk for the bank loaning millions, even if the assets all seem to check out okay on paper.

[MidwestTransplant]

15. That's right. Jumbo loans are "non-conforming" which means

they are not as readily sold in the secondary market and thus have a higher interest rate. That's assuming a comparison of people with like credit but just a jumbo vs. a non jumbo loan.

[Robbien]

16. Well, about ten years ago

I worked in this area as one of the specialists. Our wealthy clients got special rates because they had such huge assets.

Jumbo mortgages for people who do not have a large asset base will have to carry higher rates, but not so for the large asset wealthy.

[GumboYaYa]

18. That makes sense.....

[Warpy]

9. You'll never find a multimillionaire paying points

plus, if it's a secure loan with collateral other than the house, itself, there will likely be a lower rate on that mortgage.

Not too much lower, though. It's tax strategy.

[SCantiGOP]

20. come on people

the more money you have, the less risk you are to default on the loan, thus the better interest rate. Everything is not a conspiracy.

[Virginia Dare]

11. No experience personally...

but I did work for an ultra-rich person one time, and he was ALWAYS at the bank. He dealt primarily with one bank and had a long standing relationship with them. The bank manager would stop whatever he/she was doing and make time for this guy pretty much whenever he wanted. His business finances and personal finances were pretty much one and the same, so I guess the point is, yes, the rich do things far differently than the vast majority of the rest of us.

They don't schlep around town shopping rates and filling out paper work, etc, it's nothing like our experiences in taking out mortgages.

[mmonk]

14. Have you ever heard the term "using someone else's money"?

[HiFructosePronSyrup]

17. Well, they sure don't need to buy mortgage insurance.

[demobabe]

22. Think like a rich person

You have $2 million burning a hole in your pocket.

You find a $2 million house you love.

Now: do you go and buy the house for cash, locking all that money away in a non-liquid form

or

do you put $400,000 down (20%) and make payments on a 6% loan and take the $1.6 M and invest it in places where it will return more than 6% AND be able to deduct all the interest you pay on the loan from your taxes?

[Mayberry Machiavelli]

23. Ya, but if you don't have a lot "extra" and that "sure thing" investment

TANKS, then Lucy, you got some 'splainin' to do!

[BensMom]

24. And many ultra rich

Have the names under a company, a trust or a limited liability partnership.
The people sleeping under the roof may not be on any of the paperwork or documentation .

[David Zephyr]

26. There is a full bag of tricks available to them. Here's a few:

1037's that allow them to keep rolling and profiting from selling rental properties and then "convert" it all into a fabulous multi-million dollar private residence IF they will first "rent" it out for twenty-four months. They typically "rent" it to a family member. Plus the depreciation schedules are unbelievably generous, too.

Then there are "Reverse 1037's", too.

Of course, all interest income is deductible for "vacation homes" as well. Well, that is just one vacation home.

There are too many to list, but you are on the right track.

Former California Governor Jerry Brown has always asserted that rents should also be deductible. I agree.