I was talking to one loan agent lately about getting an investment loan, she was trying to convince me to mortgage my house but my house has been mortgaged already.
She was saying "let us not worry about it, we can mortgage it to a different bank".
Logically, I do not think this is legal.
What are your thoughts?
Update: My property is fully mortgaged, so basically this agent was trying to double mortgage it to a different bank.
It depends on how much equity you have in your home.
Scenario 1: Your home is worth $100K, and your current mortgage is for $100K (or more which means you are underwater.) In this case you can't get a 2nd mortgage because:
That being said, you can use different portions of equity in your home as collateral for multiple mortgages, as long as none of the equity overlaps, but you may need permission from the primary mortgage bank first, for example:
Scenario 2: Your home is worth $100K, and your current mortgage is for $80K meaning you currently have $20K in equity. It is possible to get a 2nd mortgage or home equity line of credit for $20K.
As a side note, if your loan agent is telling you to use a different bank, it sounds like she is trying (and willing) to do something shady. If you are in Scenario 1, I'd find a new agent.
It's legal. That's what a home equity loan is, for example. More generally, what you're talking about is a "second mortgage". It has no effect on the primary mortgage that you've already made to your bank; they're still secured, and if you get foreclosed, they get paid, and only if there's something left over does the second mortgage holder get anything. That's why second mortgages are more risky than first mortgages, and why you might have trouble finding someone willing to do it.
A mortgage will show as a lien on your property. Say your home is worth 400,000 (money units) but you only owe 200,000. A lender may be willing to be second in line, lending you another 100,000.
In addition to all the other answers, here is a New Zealand Herald article from earlier this year about second mortgages, confirming that it is both legal and common in New Zealand.
Whether or not it is a good idea in your situation is another question.
The loan agent surely knows that having a combination of loans greater than the value of the property (less some margin) is illegal, but also impossible. Your first mortgage, mechanic's liens, tax liens, and so forth are a matter of public record. In most states the records can be viewed online, by anyone, for free. The title search prerequisite for getting the second mortgage looks beyond the low hanging fruit for things like aborigines claims for parcels of land that include your property. The loan agent is trying to sell you a home equity line of credit. Almost everyone gets one after building up some equity. There's often no closing cost and it's not necessary to ever use it. Keep it for emergencies.
Banks in New Zealand tend to take a lien that is higher than the amount of the loan, so that your only option for a second mortgage is with them. ASB wanted 50% more than the value of the loan when I had my mortgage with them.
Of course, with house price inflation the way it's been in NZ, the value of your house may have outstripped the lien anyway, and you can mortgage the rest of it with anyone you like. I suspect your lawyer will need to inform the other lienholder, but you don't need their permission.
