If you own your own home and haven’t refinanced in the last year, why are you procrastinating? Mortgage rates remain close to their all-time lows, so you might easily mow down your interest rate and monthly payment.
Ninety-year-old investing sage Warren Buffett would wonder what you’re waiting for.
Rates on 30-year fixed-rate mortgages right now are averaging just 2.73%, not far above early January record of 2.65%, according to 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 during his company’s 2020 annual shareholders meeting, which was held online.
Buffett been on something of a borrowing binge himself, and at some truly eye-popping rates. You can do pretty well, too, if you follow his lead.
Use Buffett as your role model
To shore up an economy during the onset of the coronavirus crisis, the Federal Reserve last March slashed a key interest rate nearly to zero. More recently, Fed officials signaled they’ll 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 holding company did come close last year as it benefited from the Fed’s low-rate environment.
In an April filing with with federal 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 a mere 0.674%.
You won’t find 30-year mortgage rates way down in that neighborhood, but they did set new lows an incredible 16 times during 2020, Freddie Mac says. That was thanks in part to the Fed’s extreme rate cutting and its other moves to prop up 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 average $300+ per month: study
Many households have been seizing upon the cratering rates on home loans. In late January, Americans were applying for refinance mortgages at the strongest pace since last March, 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 $308, the mortgage technology and data provider Black Knight recently reported.
Still on the fence? You’re in a good position to refinance if you currently have a 30-year mortgage at around 3.50% 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.