I’m pretty young and I don’t know a lot about mortgages in the first place but how and why can you take a second mortgage on your house to gain a bunch of money? I hear people say it all the time in shows and movies and it sounds like a very bad thing.
In: Economics
You buy a house for $200k and borrow $180k of that from the bank – that’s your first mortgage.
Five years later the house is worth $250k and you now only owe $160k on that mortgage.
You could then choose to borrow another, say $50k, from the bank as a ‘second mortgage’, meaning you now owe $210k on a house worth $250k.
It’s bad in that it puts you back further in debt. But if you really needed the money it would be the cheapest way of borrowing it.
Or if you were, say, using it for house improvements then it isn’t really setting you back as presumably the value of the improvements are reflected in a higher home valuation meaning your net position is about the same.
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