Many years ago, I took out a second mortgage on my home. The house had grown in value and had at least $30,000 of equity. At that time, I had multiple reasons.   The second mortgage added a second monthly payment to my already very tight budget. I made both the original payment and the second mortgage payment for a couple years until I was able to refinance both loans into a ten-year fixed interest rate loan. Fortunately, I was able to pay off the ten-year loan in about six years. 

Let me hasten to say I would never want to do a second mortgage on my house again. Looking back, it was a bad financial decision. This type of loan is an option if you are in dire straits. At the time, I thought It was something I needed to do and it worked out. 

My bank did ask what I wanted the money for, and I told them my numerous reasons. Essentially, they didn’t care. They only cared that I had the financial ability to pay it back. They cared if my property was valuable enough to cover their costs if I defaulted on my loan. They wanted to verify my income, any other loans, and review my previous three years of income tax reports. 

After the deal was made, I didn’t hear anything from the Attorney General or any federal judges about my loan from the bank. No one hounded me about my interest rate or the fixed number of years I would pay back the loan. The arrangement was made between my lending institution and me. It wasn’t anyone else’s business. 

Let’s say I determine my house today is worth a million dollars. It’s not, but I can say it is based on what it means to me. Anyone can value their property for whatever they think it’s worth. Let’s say I go to the bank and want to borrow $600,000 against my one-million-dollar house. At this point the bank has to begin their process of determination. They will do an appraisal of my house. They will then look at my income and any other assets. They will determine if they think the loan is in their favor to make. If in reality my house is only worth $400,000 then they may say we can’t loan you the $600,000 but we can loan you $200,000.  It then becomes the decision of the lender as to how they want to proceed with the loan and how much they want to loan. If I falsify my financial records in order to get the loan then that becomes problematic. If the lender does a good job in verifying the value of the property, there shouldn’t be a problem.  If the lender for some unlikely reason determines to loan me the $600,000 because I’m a good customer and they like me, then the deal is between the lender and me.