Loan Flipping

The description of equity stripping in an earlier post describes a situation where the home equity was "stripped" by a predatory lender by utilizing only one mortgage loan.

An extension of this technique involves the use of a "series of mortgage loans", obtained over a relatively short period of time, and is referred to as "loan flipping."

It may be that your original loan may have only "stripped" you of a small part of your home equity and that your paymnets are currently affordable.

A short time after you obtained your original loan, your lender might contact you and offer to refinance your loan, promising to make the terms more affordable. The lender may use the availability of extra cash as bait, claiming it's time the equity in your home started "working" for you. You agree to refinance your loan.

After you've made a few payments on the loan, the lender calls to offer you a bigger loan for, say, a vacation. If you accept the offer, the lender refinances your original loan and then lends you additional money. In this practice, the lender charges you high points and fees each time you refinance, and may increase your interest rate as well. Your total debt has increased and your period of indebtedness may have been extended as well. If the loan has a prepayment penalty, you will have to pay that penalty each time you take out a new loan.

Long story short? With each refinancing, you've increased your debt and probably are paying a very high price for some extra cash. After a while, if you get in over your head and can't pay, you could lose your home, or, at a minimum, you possibly find yourself spending every cent of your income in a desperate struggle to hold onto your home.