The 'Oracle of Omaha' Warren Buffett still visits the Berkshire Hathaway office every day and influences stock trades even afterhanding over the baton to Greg Abelin late 2025.
When it comes to homeownership, Buffett has a very clear view of financing. He believes the 30-year mortgage offers homebuyers a built-in advantage. The legendary investor described the mortgage as the 'best instrument in the world' that offers a 'one-way bet' that works in the homeowner's favour.
'If you know you're going to live in a given area, or think it's very likely, for a considerable period of time and you've got a family, the home is terrific,' Buffett had told CNBC in 2017.
Buffett's argument focuses on locking up risks early in life. 'One of the reasons a home is a terrific buy is because of the 30-year mortgage,' he had said. Buffett thinks it is the best financial instrument in the world because 'if you are wrong and rates go to 2%... you pay if off. It is a one-way renegotiation.'
The 'one-way' setup is related to refinancing debt. You can refinance a fixed-rate 30-year mortgage into a lower rate if it drops in the future. However, the original rate stays fixed if rates rise.
For instance, 30-year mortgage rates rose above 18% in the early 1980s, which meant extremely high initial repayments. However, homeowners eventually refinanced into lower rates as they declined over time, which improved their financial stature without any additional risk.
The same pattern was observed during the COVID-19 pandemic, when 30-year mortgage rates fell close to 3%, driving a wave of homeowners, who were locked into higher rates, to refinance their mortgages that considerably reduced their monthly payments.
This flexibility that comes with downside protection and scope for improvements amid dynamic economic changes appeals to Buffett.
Buffett preached as well as leveraged his mortgage strategy when he purchased his Laguna Beach home in 1971.
'When I bought it for $150,000, I borrowed some money from Great Western Savings and Loans. So I probably only had $30,000 of equity in it or something like that. It's the only mortgage I've had for 50 years,' Buffett had told CNBC.
Source: International Business Times UK
