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Should you listen to the billionaire finance buff about your home loan?
Key points
- Buffett recommends taking out a 30-year mortgage.
- Buffett believes a 30-year mortgage is the “best instrument in the world.”
- With a 30-year mortgage, banks assume the risk of higher interest rates.
Chances are good you’ve heard of Warren Buffett. He’s a billionaire, a world-famous investor, and a well-known financial expert who has provided a wealth of financial advice.
While Buffett has many investing tips that are worth paying attention to, seeing as he’s amassed a fortune through strategic investments, he has some other financial tips as well. Specifically, Buffett has recommended a particular type of home mortgage for people looking to buy a property of their own. Here’s what it is.
This is Buffett’s preferred mortgage option
Buffett believes homeownership is a solid investment for individuals and families who intend to remain in the same place for many years. And the investing expert has indicated that one big reason homeownership is such a good investment is because of the 30-year mortgage.
Buffett has called the 30-year mortgage loan the “best instrument in the world, because if you’re wrong and rates go to 2 percent, which I don’t think they will, you pay it off,” he said. “It’s a one-way renegotiation. I mean, it is an incredibly attractive instrument for the homeowner and you’ve got a one-way bet.”
Essentially, this means a 30-year mortgage works out well for homeowners because they get a low-rate loan while the bank assumes the risk of rising interest rates. And if interest rates do happen to fall further, homeowners can simply refinance into a new loan with an even lower rate and pay off their existing debt. On the other hand, if rates go up, they can keep paying at the low rate they obtained (assuming they got a fixed-rate loan) and their principal and interest payments won’t become more expensive over time.
Buffett himself obtained a 30-year mortgage when he bought his Laguna Beach vacation house in 1971, and he said he borrowed most of the $150,000 price tag and only had about $30,000 of equity in it.
Here’s why Buffett’s right about the best type of mortgage
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