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Why Warren Buffett says you should refinance your mortgage

MoneyWise logo MoneyWise 11/29/2020 Doug Whiteman
a close up of a man wearing glasses: Why Warren Buffett wants you to refinance © Larry W Smith / EPA / Shutterstock Why Warren Buffett wants you to refinance

If you own your own home and haven't refinanced in 2020, what are you waiting for? Mortgage rates are lower than ever this year, meaning you might easily slash your interest rate and monthly payment.

Investing sage Warren Buffett, who turned 90 this year, would probably tell you to stop procrastinating already.

Rates on 30-year fixed-rate mortgages are averaging an unbelievable all-time low of 2.72%, according to the current survey from mortgage giant Freddie Mac.

"This is a very good time to borrow money, which means it may not be such a great time to lend money, but it’s good for the country that it’s a good time to borrow money," billionaire Buffett said a few months ago during his company's online annual shareholders meeting.

Buffett been on something of a borrowing binge himself, and at some truly jaw-dropping rates. You can do pretty well, too, if you follow his lead.

Borrow like Buffett

To shore up an economy during the onset of the coronavirus crisis, the Federal Reserve in mid-March slashed a key interest rate nearly to zero. In recent months, Fed officials signaled they'd keep rates at next to nothing until 2024.

Buffett hasn't figured out a way to borrow at 0% interest (at least not yet), but his Berkshire Hathaway company did come close earlier this year as it benefited from the Fed's low-rate environment.

Gallery: Here’s How Low Interest Rates Will Impact Your Retirement (Money Talks News)

In an April filing with U.S. regulators, Berkshire said that through a bond offering priced in Japanese yen, it would be taking on the equivalent of over $1.8 billion in debt — at rates ranging from 2% to just 0.674%.

You won't find 30-year mortgage rates way down in that neighborhood, but they have set new lows 10 times this year, Freddie Mac says. That's thanks in part to the Fed's extreme rate cutting and its other moves to help the economy.

During a 2017 CNBC interview, Buffett called the 30-year mortgage "the best instrument in the world" — because of your ability to refinance when you find a lower rate.

"If you’re wrong and rates go to 2%, which I don’t think they will, you pay it off," he said at the time. "It’s a one-way renegotiation. It is an incredibly attractive instrument for the homeowner and you’ve got a one-way bet."

Refinancing saves an average $300+ a month: study

a man and a woman looking at a laptop: fizkes / Shutterstock © Provided by MoneyWise fizkes / Shutterstock

Many households have pounced on the tumbling rates on home loans. Americans have been applying for refinance mortgages at nearly double the rate of a year ago, according to the Mortgage Bankers Association.

"With many homeowners still facing economic and employment uncertainty, these refinance opportunities will allow them to save money on their monthly payments, which can then be used to help other areas of their budgets," says Joel Kan, the trade group's vice president of forecasting.

At current rates an estimated 19.4 million homeowners are sitting on loans they could refinance to cut their monthly costs by an average $309, the mortgage technology and data provider Black Knight said in mid-November.

Still waffling? You're in a good position to refinance if you currently have a 30-year mortgage at 3.65% or higher, and if your credit score is exceptional (800 or higher) or very good (740 to 799).

Warren Buffett says it's a good time to borrow money. Maybe it's time to cut down the cost of your mortgage.


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