Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited.

Why will the bank only loan us 80% of the value of our fully paid for home?
To supplement existing answers: the appraised value does not necessarily represent the net amount the bank could actually recover with a foreclosure. Let's look at it from the point of view of the bank.  Suppose the property appraises at $200,000 and they do what you want: loan you $200,000 with the property as collateral.  Now suppose a short time later, you quit paying the mortgage and they have to foreclose.  Can the bank get their $200,000 back? An appraisal is only an estimate; nobody can predict perfectly how much a property will sell for.  Maybe the appraiser missed something significant, and the property will only fetch $180,000. Even if the appraisal was accurate when it was made, property values may have dropped in the meantime.  Maybe a sudden economic crisis is driving real estate prices down across the board.  Maybe interest rates have spiked.  Maybe the county has changed the zoning regulations to locate a toxic waste dump next door to the property.  In any of these cases, the property may again fetch well under $200,000. Maybe the condition of the property has changed.  Perhaps you trashed the place and it will take $30,000 to clean it up.  (People have a tendency to do things like that when they get foreclosed.) If the bank wants to get full market value for the property, they will incur the usual costs of selling a property: paying a real estate agent's commission, painting, renting furniture to stage the property, and so on.  This will eat into the net amount they actually get from the sale. It may take some time (perhaps months) for a property to sell at its full market value.  During this time, the bank is out $200,000.  That's money they would rather be loaning out at interest to someone else, so this represents lost income. Foreclosing a mortgage is a fairly complicated procedure.  The bank has to pay its staff, including lawyers, for a significant number of hours to get the foreclosure done.  There will be court filing fees and so on.  If you refuse to leave, they may have to get the sheriff to evict you; that has a fee as well.  If you fight the foreclosure, that racks up even more legal fees.  This too eats into the net proceeds from the sale. So if the bank loans you the full $200,000, they stand a pretty significant risk of not getting all of it back, after expenses.  You can understand that risk may not be worth the interest they would get from you on the extra $40,000. On the other hand, if they loan you only 80% of the property's appraised value ($160,000), they effectively shift that risk onto you.  Should you default on the loan, and they foreclose, all they have to do is sell the property for $160,000 or a little bit more.   That shouldn't be too hard, even if it is not freshly painted or a bit trashed.  They probably don't need to hire a real estate agent: just hold a quick auction, maybe first calling up a few investors who might be interested in flipping it.  If it happens to sell for more than the outstanding principal of the loan, plus the bank's costs, then they will pay you the difference; but they have no incentive to make that happen, and every incentive to just get it sold quick.  So any difference between the property's true value and the actual sale price now represents a loss to you first, not to the bank. So you can see why the bank would rather not loan you the full value of the property.  80% is a somewhat arbitrary figure but it cuts their risk by a lot.