Taking more amount in mortgage than what I need

There are some 103% mortgage programs that I found. There were more available before the 2000's housing market collapse. These programs are designed to cover the price of the house plus closing costs. They do it my having a primary mortgage and a second mortgage. That 2nd mortgage is more expensive but if you throw money at it you can pay it off faster.

There are other programs where you can get money to purchase the house and money to make repairs at the same time. The lender assumes the repairs will increase the value of the home.They have a procedure in place to make sure you do get the repairs done.

what you are proposing, is the preservation of cash to be able to invest is generally done by limiting the amount of the down payment. You can then have a lump sum to invest. Of course if you borrow more than 80% you will have PMI costs.

It would be very rare for a lender to give your more than 100% of the value of the house, and then say do whatever you want with the funds.

Is it legal to take additional money in home mortgage and not use it towards the house?

There are two legal concerns:

• If you and the seller conspired to make the purchase price appear higher, and then they gave you the extra funds that would be fraud. In other words take a 500K house, and make the paperwork show it is worth 600K; that makes the 80% loan amount 480K instead of 400K. That would be loan fraud.

• Interest on loan amounts that aren't for the acquisition costs of the home, are not tax deductible. So loan proceeds for you to invest would not be tax deductible as a housing expense. If you also committed loan fraud to make it appear legitimate you could add tax fraud to the mix of charges.

Now if you found a lender and they allowed it, and you documented it properly on your taxes, it would not be illegal.

As others have noted this is a bad idea all around. Just get a margin loan from your broker if you really want to trade stocks on leverage. That is what they are designed for. I will warn you that they can be very risky.

Don't tie up your home with your risky investments though, that seems like a recipe for disaster.

Think of it from the bank's perspective. When they give you a loan, they want to profit from it. Now how much they profit (on average) from a loan of a fixed length depends mainly on two factors: The interest rate and the risk of not getting some or all of their money back.

The interest rate is something they control, while the risk is more or less given to them by the type of loan (e.g. mortgage vs. consumer loan) and by how a reliable they judge you to be when it comes to payment (e.g. income, previous transactions and other debts in the form of credit rating and so on). So, if the risk is high, they will charge a higher interest to offset this (or decline to give you a loan), while for a low risk, the interest has to be lower as well, otherwise you'd go to a competitor instead.

Now the reason why a mortgage normally has a low interest rate is that it is a low risk investment for them, because there is a house involved as a security. Even if you somehow manage to bankrupt yourself, they'll still can get their money back by selling the house. So from this point of view, they do not care what you use the money for or how much you pay down. The one thing they care about is that there is water-tight paperwork that allows them to recover all debts by selling your house if they have to.

Everything else is just a consequence. For example they'll send the money directly to the seller not because that specific money needs to be used specifically for this, but simply because both transactions need to happen at the same time. They don't want to hand out the money before you own the house and the seller won't give it to you until the money is there. And in particular they want to make sure that they can sell the house for more than what you owe them.

If you consider the costs involved in selling a house and possible missed interest payments, what you owe them in the end might be more than the initial loan. Similarly, the house might loose in value due to lack of maintenance or a general bad real estate market. This is where the down-payment comes from. To cover for those eventualities, they simply want the total amount of the loan to be lower than what the house sells for in order to make sure they can recover everything. Your down-payment then simply covers the difference.

Now this finally gets us back to your question. If you want to take out more money to invest somewhere else, the difference between loan amount and house price gets smaller. Thus the bank runs a higher risk of not getting their money back and to offset this, they'll increase your interest rates. Think about it: From the point of view of the bank, taking out an additional 5% of the buying price for something else is identical to you just getting a loan with 5% down-payment instead of 10%.

They might still want to do it, but to compensate for the risk, they'll increase the interest rate accordingly. It might have worked for going from 60% to 40% down-payment, but this close to the full buying price the additional risk for them will be nearly as high as for an unsecured loan, so you are unlikely to make profit of this.

I'll give you the short answer.

Yes, it's legal to borrow more than you think you need. You are free to invest your savings as you see fit.

From a purely financial perspective, you need to ask yourself whether you are better off having your wealth tied down in the stock market, or your house.

If the past is any guide to the future, stocks AND real estate are likely to do well in the years to come, now that interest rates lower than they were in the aftermath of the financial crisis.

Good luck with your purchase :-)

This isn't uncommon in Canada. We've got a mortgage on the house combined with a HELOC that fluctuates but always stays around 80% of the value of the house. As the mortgage is paid down, the HELOC limit increases, which we then use to invest in dividend paying ETFs. Those dividends are then used to pay down the mortgage (also called a Smith Manoeuvre). It's a faster way to pay off the mortgage, and make the interest tax deductible (which it isn't in Canada like the USA).