Definition
Flipping is the act of repeatedly refinancing a home mortgage loan.
Analysis
Flipping is a common practice with mortgage brokers, who stand to profit from substantial commissions and kickbacks each time a mortgage is flipped. Some homeowners may pay several points each time they refinance the loan. This is especially common for subprime borrowers.
Flipping is done to convert a mortgage into a lower interest rate. However, sometimes the fees charged outweigh the benefit of a lower rate.
Mortgage brokers falsely claim that a homeowner that agrees to a predatory loan may easily refinance the loan in a year after successfully making on-time payments. However, most homeowners find that their credit scores have not improved substantially, and that the purpose of flipping is primarily to allow the mortgage broker to strip out any limited equity in the home through commissions and fees on the new loan.
