Warren Buffett’s views on stocks are well documented but when it comes to real estate, his opinions are not as publicized.
In 2011, he shared this piece of golden advice with CBNC’s Squawk Box:
“If you take out a 30 year fixed mortgage and it turns out the interest is too high, next week you can refinance lower. If it turns out it’s too low, the other guy is stuck with it for 30 days.”
The value in being able to refinance
Let’s unpack his statement.
First, the “other guy” is the investor, which for the vast majority of mortgages is Fannie Mae or Freddie Mac.
Second, “refinance lower” likely comes with a caveat; when you can do so with limited to no fees.
Buffett is advising that merely having option to refinance is very advantageous because it is a way to short the dollar.
If rates go down, your fixed mortgage payment can only get lower. Rates go up, not your problem.
One-way negotiation
Buffett eloborates further in 2017 again on CBNC Squawk Box:
“It’s a one-way negotiation. A [30 year fixed mortgage] is an incredibly attractive instrument for homeowners and you’ve got a one-way bet.”
10M homeowners can benefit from refinancing today
The key point Buffett is making is you should not be fearful to refinance when it’s advantageous. If you don’t, you’re missing out one of the most attractive aspects of holding mortgage debt.
This is where SELFi’s mission and Buffett’s advice gel. SELFi is focused on educating homeowners so that they can make the best decision with their mortgage refinance, regardless if that’s through SELFi.
According to data from Black Knight, 10M homeowners can benefit from refinancing today by lowering their rate .75% and saving on average $267.
That number is probably very conservative. The study uses average mortgage rates, as opposed to below market options that exist through platforms like SELFi.
The crazy thing is, most homeowners can have the lender PAY THEM to refinance.
Have the lender pay you to refinance
Negative closing costs are a real thing, and can be used to pay property taxes, interest, and even reduce the unpaid principal balance.
That is a deal that Warren Buffett would certainly take. And if rates go down further in the future, you can always do it again.
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Warren Buffett’s advice on mortgage refinance aligns with SELFi’s mission.
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Based on government mortgage origination requirements seniors or retirees are only allowed to own homes if they can pay cash.
We were told by Clayton Homes that Vanderbilt Mortgage and Finance would refinance our mortgage to a lower interest rate in 6 months. Both Clayton Homes and Vanderbilt Mortgage are owned by Warren Buffett. They do not refinance. We have been fighting for several years to try and save my elderly mothers home. Manufactured homes do not qualify to any government assistance programs either.