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. More recently, Fed officials have 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 company did come close earlier this year as it benefited from the Fed's low-rate environment.

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

Focused young couple in kitchen discussing whether to refinance their mortgage.
fizkes / Shutterstock

Many households have pounced on the tumbling rates on home loans. Americans have been applying for refinance mortgages at more than double the pace 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 $308, the mortgage technology and data provider Black Knight reported in early December.

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.

About the Author

Doug Whiteman

Doug Whiteman


Doug Whiteman is the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."

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