Mortgage rates have been trending upward recently, after hitting record lows in January. But if you’re a homeowner and haven’t refinanced your loan in the last year or two, you might be missing out on big savings.
Just last week, rates fell for the first time in almost two months — even more reason to stop procrastinating.
Ninety-year-old investing sage Warren Buffett would wonder what you're waiting for.
"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, held online.
Buffett has 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 year 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 April 2020, 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 30-year fixed-rate mortgages right now are averaging 3.13%. Despite recent increases, rates are still historically low.
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 $277 a month: study
And remember, Buffett knows a few things about the housing market. Aside from his company's investments in energy, insurance and telecom, Berkshire also owns HomeServices of America, the largest residential real estate brokerage in the U.S., according to RealTrends.
Many households have been seizing upon the low rates on home loans. In late January, Americans were applying for refinance mortgages at the strongest clip since last March, though that pace has been slowing, according to the Mortgage Bankers Association.
At current rates, an estimated 11.1 million homeowners are sitting on loans they could refinance to cut their monthly costs by an average $277, the mortgage technology and data provider Black Knight recently reported.
You could use your savings for investing — maybe with the help of a popular app that lets you grow your portfolio using just "spare change."
Still on the fence about a refi? You're in a good position to do that if you currently have a 30-year mortgage at around 3.9% or higher, and if your credit score is exceptional (800 or higher) or very good (740 to 799).
When Warren Buffett says it's a good time to borrow money, maybe it's time for you to cut down the cost of your mortgage.