OK, I know it's bold of me to question received wisdom, and with my first post no less. But before you all wig out on me, read on, perhaps there's a method to my madness.
First of all, I'm still working in the US Foreign Service; my family and I are posted to a US Embassy in South Asia. Because I'm assigned overseas, my employer provides us rent-free housing, a significant benefit to our family of four.
Meanwhile, we're renting out our SFH in Northern Virginia which we bought in 1998 (we should have bought 15 comparable houses back then). In the interim, real estate prices in our area tripled, then plateaued during the Great Recession. Rents, however, are heading up. Ours is at the point now that, were we reassigned to Washington, we would have to give up a significant income stream to move back into our house. We made an excellent decision buying this property, but admittedly we were also very lucky.
We most recently financed a month ago, taking out - wait for it - a 30-year mortgage at 3.5%. We also went whole-hog, borrowing the maximum ($417,000) for a conforming loan. We also have a home equity line at Prime Rate minus 0.5%, or 2.75% right now. We use the HELOC as our "springy debt" source of emergency cash (cf.
http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/).
So why did we bother with such a big, long mortgage?
First of all, this is likely the cheapest you can find anywhere. Since we're in the 25% Federal and 5.75% Virginia tax brackets, the after-tax rate is a measly 2.42375% after taxes.
Long-term, we believe that tax rates are headed up, so we appreciate being able to protect a good amount of our income from taxes.
Furthermore, we save like fiends and fervently believe that we can make more than 2.42375% in the stock market over the next 30 years - heck, there are plenty of quality stocks with dividend yields higher than that right now.
Also, by getting our home equity out of the house, we're actually increasing our liquidity and flexibility. We also have some cash to cover any unforeseen home expenses or to purchase the next house if/when we serve in Washington.
Finally, whether we continue to work or not, we only need to make the next month's payment; keeping that cash / equity out of the house puts us in the driver's seat with regard to investment choices.
In short, we think this mortgage will help us create more wealth more quickly than we otherwise would. A best-selling financial planner thinks the same thing (cf.
http://www.ricedelman.com/cs/education/article?articleId=232) and the
Journal of Financial Planning and other academic analysts opine the same.
Heck, even MMM admits that "when it comes to mortgage debt, [he's] a man of contradictions (cf.
http://www.mrmoneymustache.com/2012/04/25/unlocking-your-home-equity-for-profitable-investments/).
I look forward to your critiques / comments. Cheers!