Loan Flipping

What is loan flipping?

Unlike the common terminology, loan flipping is not a loan for real estate flipping, house flipping loan, or mortgage flipping loan. Loan flipping is a term used to describe what some lenders do to take advantage of borrowers. Below is a discussion of what loan flipping is.

Loan flipping explained

Suppose you have had your mortgage for many years at low interest rates and low monthly payments. Suppose you also have equity in your home. Then you need some extra cash and want to refinance your mortgage and take cash out. When lenders want borrowers to refinance, they often attract them by offering cash out refinance options. If you could use the money and bought into the concept of making your equity work for you, then you would sign up for mortgage refinancing.

Then a few months later, the lender may call you again offering a bigger loan amount. If you are sold on the concept of refinancing your mortgage again, then the lender will charge you high points and fees each time you refinance your mortgage loans. The mortgage interest rates may also increase. The existing mortgage loan may also have a prepayment penalty which you will be charged for.

What is the result of loan flipping?

If you keep refinancing your mortgage loans, in another word loan flipping, then you will end up having to pay more fees and points as well as increased interest rates the way the real estate market is going. Then you will also owe more money overall. You debt to income ratio will explode and you will owe the debt for a longer period of time.

You may not see the fees and costs of refinancing in your mortgage refinance application paperwork if the lenders make it hard for you to find. Many mortgage loans can roll the fees into the mortgage balance making your loan balance even bigger.