With 30-year fixed mortgage rates still hovering around 3%, homeowners who haven’t refinanced during the pandemic era might be missing out on big savings.
Ninety-one-year-old investing sage Warren Buffett would wonder why you’ve been holding off.
He told shareholders at his Berkshire Hathaway company’s annual meeting in May that there are still great opportunities for borrowers, thanks to the Federal Reserve’s commitment to holding its key interest rate close to zero.
“The economy went off a cliff in March [2020],” Buffett said. “It was resurrected in an extraordinarily effective way by Federal Reserve actions.”
Mortgage rates have fluctuated this year, but they’re still low enough that you could save hundreds of dollars a month by refinancing your mortgage.
Use Buffett as your role model
To give the economy some cushioning from the coronavirus crisis, the Fed last year slashed a key interest rate nearly to zero. More recently, Fed officials signaled they could keep rates at next to nothing until 2023.
“It’s a fascinating time [for borrowers],” Buffett told his investors, adding that the low-rate environment “is enormously pleasant.”
While Buffett hasn’t figured out a way to borrow at 0% interest (at least not yet) his Berkshire Hathaway holding company (BRK.A, BRK.B) 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 was 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 that low, but 30-year fixed-rate mortgages right now are averaging 2.99%, according to the latest data from mortgage giant Freddie Mac.
Though rates are still historically low, they’re expected to rise soon. Freddie Mac has forecast that 30-year rates will be in the neighborhood of 3.4% at the end of 2021 and hit an average 3.8% late next year.
Refinancing can save hundreds per month, survey finds
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.”
Despite the potential for big savings, many U.S. households have been slow to hop on board the refinance train. Over the year of ultra-low mortgage rates that ended in April, fewer than a quarter of homeowners refinanced their loans, a Zillow survey found.
Among those who did refi, close to half (47%) are now saving $300 or more each month, according to the same study.
Still on the fence about a refi? You’re in a good position to take out a fresh loan if you currently have a 30-year mortgage at around 3.75% or higher, and if your credit score is exceptional (800 or higher) or very good (740 to 799).
When Buffett says it’s a good time to borrow money. So maybe it’s time for you to cut down the cost of your mortgage.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
