Warren Buffett's Mortgage Advice Beats Dave Ramsey's Any Day of the Week. Here's Why.

The billionaire investor understands one key factor about mortgage loans that Dave Ramsey doesn't.

Decisions you make about a mortgage loan could have a profound impact on your finances. If you borrow to buy a home, chances are good your mortgage will be your largest monthly payment and the biggest debt you take on over the course of your life. You'll also be committing to making payments for a long time.

That's why it can be frustrating to see lots of conflicting mortgage advice out there.

Warren Buffett and Dave Ramsey don't agree about mortgages

Some financial experts, such as Dave Ramsey, urge people to take out the smallest possible loan for the shortest possible period of time -- or even to avoid borrowing altogether and to pay cash for a home.

Others, however, take an opposite approach. In fact, billionaire investor Warren Buffett has called a 30-year mortgage "the best instrument in the world." He personally took out a 30-year mortgage when he purchased his home although he could've easily avoided doing so, and advises most home buyers to do the same. Here's why he's right.

Buffett's approach to mortgage loans is better than Ramsey's

Buffett's advice about mortgage loans makes a lot more sense than Ramsey's. That's because Buffett fully understands there's an opportunity cost associated with paying cash for a home -- or even taking out a shorter-term mortgage with higher monthly payments. Ramsey seems to ignore this fact when he warns buyers to steer clear of a 30-year mortgage, instead opting for a shorter repayment term with higher monthly payments or no loan at all.

When Buffett bought his home for $150,000 in 1971, he indicated he put around $30,000 down on the property and borrowed the rest. The reason: "I thought I could probably do better with the money than have it be an all equity purchase of the house."

Buffett ended up buying shares of Berkshire Hathaway with the money he could have used to purchase the home. As a result, he ended up turning the $110,000 or $120,000 that he'd have paid in cash for the home into a whopping $750 million because Berkshire shares have gone up so much in value.

You don't have to be Buffett to get good returns

Now, it's unlikely that most people will see the type of return on investment that Buffett did by buying Berkshire shares. But it is reasonable to assume most people could get a better return by investing than by paying cash for a home even if they aren't expert investors. Investing in an S&P 500 index fund could produce average annual returns of around 10% over time, which is well above even an expensive mortgage at 4% or 5%.

By tying up your money in a home, as Ramsey suggests, you miss out on the chance to do other things with it that could have a greater impact on your net worth. That's true whether you make a large down payment, pay cash for a home, or opt for a 15-year loan with much higher monthly payments.

And, as Buffett points out, you also have the ability to make your mortgage even cheaper by refinancing if rates go down. "It's a one-way renegotiation. It is an incredibly attractive instrument for the homeowner and you've got a one-way bet."

For all these reasons, you should listen to Buffett rather than Ramsey. If you're buying a home, a 30-year mortgage is the best way to do it.