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
Let’s say you purchased a house for $300,000, put down $50,000, and the original mortgage is for $250,000.
You’ve paid off $50,000 of that balance, meaning you still owe $200,000 on the house.
The house is now worth $325,000 because it has been a while, and prices have gone up. You now owe $200,000 for a house that is worth $325,000.
There’s a problem, your roof is leaking and you need it fixed. It will cost you $25,000 for a new roof, but you don’t have that $25,000.
Since you have $125,000 in equity in your house, you can take out a loan against that equity – so you take out a loan for $25,000, but you still also have your original loan with a $200,000 balance.
The $25,000 loan is your second mortgage.
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