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Why will the bank only loan us 80% of the value of our fully paid for home?
If you get a loan for 80% of the value of your house, that's equivalent to buying a house with a 20% down payment (assuming the appraised value is what you'd buy it for).  That's the minimum down payment for Fannie Mae backed loans without PMI (mortgage insurance).  See this table for more details. Freddie Mac (the other major mortgage backer) has a good fact sheet on cash out loans (which is what this is called) here.  It also specifies: Maximum LTV ratio of 80 percent for 1-unit primary residences  As noted in other answers, the 80% rule is to protect the bank (and ultimately, Fannie Mae and Freddie Mac, who will eventually buy most of these loans) so it is more likely to recoup the total value of the mortgage if they must foreclose on the house.