by Maurie Backman | Updated July 19, 2021 - First published on Sept. 25, 2020
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Take a lesson from one of the most renowned investors of our time.
There are few investing giants who have the clout and reputation of Warren Buffett. As a self-made billionaire, Buffett has been a voice many people turn to for his take on buying stocks and building a solid portfolio. But the Oracle of Omaha has pretty strong opinions on homeownership, too. Buffett feels that a home can be a great investment for many people, particularly families who plan on staying in the same location for a lengthy period. He's also called the 30-year mortgage "the best instrument in the world."
Given Buffett's track record, it pays to heed his advice on all things money-related, and that includes buying a home. Here's why it could really pay to take out a 30-year mortgage and buy a place of your own today.
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For much of the summer, the average mortgage rate for the fixed 30-year loan stayed below 3%, and you can still snag a mortgage at under 3% today. That's reason enough to buy now -- it really doesn't get much cheaper than that from a borrowing perspective. As a point of comparison, in September 2019, the average rate for the 30-year fixed mortgage was 3.61%. A year prior, it was 4.63%. If you buy a home now, you may score a historically low rate that saves you a boatload of money over time.
When you rent a home, you help pay off somebody else's mortgage. When you own a place, you get to build equity yourself. You can borrow against that equity, or come out a winner if you sell your home at a price higher than what you paid.
If you think today's mortgage rates are competitive for the 30-year fixed mortgage, check out the 15-year loan -- those rates are even lower. But here's why a longer-term loan could make more sense. First, it leaves you with a lower monthly payment, thereby making your home more affordable from a cash-flow perspective. Secondly, it gives you more flexibility. If money is tight, you can stick to your regularly scheduled payments and call it a day. But if you have wiggle room in your budget, you can pay extra into your mortgage and eliminate it sooner.
One of the reasons Warren Buffett has accumulated so much wealth is that he's used the tax system to his advantage, capitalizing on the benefits he's been entitled to. In fact, he once made a famous remark about paying a lower tax rate than his secretary. If you're looking to score a lucrative tax break yourself, homeownership could be your ticket, since mortgage interest is tax-deductible. Of course, today's low rates mean you'll pay less interest on a mortgage than you normally would, but if you itemize on your tax return, you'll keep more of your earnings away from the IRS.
Clearly, there are plenty of good reasons to own a home, and the fact that one of the most famous investors of our time endorses that move is reason enough to consider it. But don't just jump into homeownership blindly. First, run some numbers to see how much house you can afford, and make sure to save enough for not only your down payment, but a solid emergency fund to hang onto afterward in case costly repairs arise. As long as you're financially ready, you may find that buying a home is a rewarding experience that pays in the long run -- as Warren Buffett claims it will.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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