This is the type of mortgage that Warren Buffett recommends

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Should you listen to the billionaire finance enthusiast about your home loan?

Key points

  • Buffett recommends taking out a 30-year mortgage.
  • Buffett thinks a 30-year mortgage is the “best tool in the world.”
  • With a 30-year mortgage, banks assume the risk of higher interest rates.

Chances are you’ve heard of Warren Buffett. He is a billionaire, a world-renowned investor and a well-known financial expert who has provided a wealth of financial advice.

Although Buffett has plenty of investment advice to pay attention to, given that he has amassed a fortune through strategic investing, he also has other financial advice. Specifically, Buffett recommended a particular type of home loan for people wanting to buy their own property. Here is what it is.

It’s Buffett’s favorite mortgage option

Buffett believes home ownership is a solid investment for individuals and families who intend to stay in one place for many years. And the investment expert said one of the main reasons homeownership is such a great investment is the 30-year mortgage.

Buffett called the 30-year mortgage “the best instrument in the world because if you mess it up and rates go up to 2%, which I don’t think they will, you pay it back,” he said. he declares. “It’s a one-sided renegotiation. I mean, it’s an incredibly attractive instrument for the owner and you have a one-sided bet.”

Essentially, this means that a 30-year mortgage works well for homeowners because they get a low-rate loan while the bank takes on the risk of rising interest rates. And if interest rates continue to fall, homeowners can simply refinance to a new loan with an even lower rate and pay off their existing debt. On the other hand, if rates go up, they can continue to pay at the low rate they got (assuming they got a fixed rate loan) and their principal and interest payments won’t become more expensive over time.

Buffett himself got a 30-year mortgage when he bought his Laguna Beach vacation home in 1971, and he said he borrowed most of the $150,000 price tag and didn’t have than about $30,000 of equity.

Here’s why Buffett is right about the best type of mortgage

Buffett’s advice on mortgages is perfect. As he pointed out, mortgage rates are affordable debt that borrowers can easily renegotiate if they need to.

But there’s an even better reason to go with a 30-year loan, besides the fact that it puts all the risk of a rate hike on the lender: you can do other things with your money while borrowing the most of the cost of your home to the bank.

As Buffett explained, he only invested a small amount of money on his home because he “thought I could probably do better with the money than make an equity purchase of it. the House”. He ended up buying shares of Berkshire Hathaway with her, which are now worth $750 million.

While the typical owner probably won’t earn as much on their investments, the same rule still applies. Buyers can probably get a better return by taking out a 30-year mortgage to cover most of their home’s costs, then investing all the extra money they could have put on the house (or they might have paid higher monthly payments if they had opted for a shorter loan term).

If you’re buying your own property, consider following Buffett’s advice, putting a reasonable down payment on your home, and opting for a 30-year loan that leaves you enough money for other investments.

A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage

Chances are interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.

Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.

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