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The billionaire investor understands one key factor about mortgage loans that Dave Ramsey doesn’t.
Key points
- Dave Ramsey believes you should avoid borrowing for a home if possible and should take out a mortgage loan with a short payoff time.
- Buffett believes a 30-year mortgage is the “best instrument in the world,” and used one himself.
- Buffett’s philosophy on mortgage loans makes more sense than Ramsey’s.
Decisions you make about a mortgage loan could have a profound impact on your finances. If you borrow to buy a home, chances are good your mortgage will be your largest monthly payment and the biggest debt you take on over the course of your life. You’ll also be committing to making payments for a long time.
That’s why it can be frustrating to see lots of conflicting mortgage advice out there.
Warren Buffett and Dave Ramsey don’t agree about mortgages
Some financial experts, such as Dave Ramsey, urge people to take out the smallest possible loan for the shortest possible period of time — or even to avoid borrowing altogether and to pay cash for a home.
Others, however, take an opposite approach. In fact, billionaire investor Warren Buffett has called a 30-year mortgage “the best instrument in the world.” He personally took out a 30-year mortgage when he purchased his home although he could’ve easily avoided doing so, and advises most home buyers to do the same. Here’s why he’s right.
Buffett’s approach to mortgage loans is better than Ramsey’s
Buffett’s advice about mortgage loans makes a lot more sense than Ramsey’s. That’s because Buffett fully understands there’s an opportunity cost associated with paying cash for a home — or even taking out a shorter-term mortgage with higher monthly payments. Ramsey seems to ignore this fact when he warns buyers to steer clear of a 30-year mortgage, instead opting for a shorter repayment term with higher monthly payments or no loan at all.
When Buffett bought his home for $150,000 in 1971, he indicated he put around $30,000 down on the property and borrowed the rest. The reason: “I thought I could probably do better with the money than have it be an all equity purchase of the house.”
Buffett ended up buying shares of Berkshire Hathaway with the money he could have used to purchase …….
