Debbie Neuberger SVP, Customer Care | realtors.com
Singer Mariah Carey has reportedly accumulated $18.6 million in mortgage debt on her Tribeca penthouse, a move that financial experts say is strategic.
Carey, who has owned the New York City penthouse since 1999, originally purchased the property for $9 million in cash to merge it with an apartment below. Over the past 25 years, she has taken out two loans on the penthouse and refinanced one of them twice, cashing out $10.6 million in equity as the property's value increased, according to the Daily Mail.
In 2009, Carey took out an $8 million mortgage from JPMorgan Chase Bank. She borrowed another $2.6 million against the property from City National Bank in 2015 but paid off that loan a year later. In 2016, she refinanced her JPMorgan mortgage to $17.6 million and pocketed $9.6 million in cash. By 2018, she had refinanced again to $18.6 million and cashed out another $1 million.
Carey's penthouse is now reportedly worth between $30 and $35 million, leaving significant equity available for future borrowing if desired.
Experts highlight several advantages of maintaining a mortgage even for someone with Carey's reported net worth of $350 million.
"Until recently, we’ve been in a historically low-interest rate environment since 2009 when Carey started taking out mortgage loans," said Aaron Gordon, branch manager and senior mortgage loan officer at Guild Mortgage. "If Mariah Carey was making 5 to 7% interest per year on her investment portfolio and she was able to secure a mortgage in the 1 to 3% range, it made way more sense to leave her cash in investments and finance her homes."
There are also tax benefits associated with writing off mortgage interest which can reduce taxable income while leveraging debt allows individuals to maintain liquidity for other investment opportunities.
"When anyone has the cash to pay off their mortgage debt, having that mortgage becomes an arbitrage," said Richard Redmond of Redmond Mortgage Capital in San Rafael, CA. "You keep the mortgage and invest the cash."
For most people not possessing celebrity status or wealth akin to Carey's, maintaining manageable levels of debt is key.
"For most people keeping a 30-year fixed-rate mortgage is a good idea," Redmond added. "Gradually paying down principal on the mortgage is essentially a forced savings plan at the mortgage interest rate."
Matt Schwartz, co-founder of VA Loan Network advised: "For the rest of us a good rule of thumb is that your mortgage should be about 2.5 to 3 times your annual income but it really depends on your financial situation and comfort level." He emphasized careful budgeting and avoiding excessive borrowing against home equity as essential measures for preventing financial distress such as foreclosure.
Aaron Gordon concurred: "Secure a mortgage that you know you can comfortably afford today as well as tomorrow if your income changes."
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