What does "equity stripping" refer to?

Equity stripping refers to a predatory lending practice that encourages borrowers to take out loans against their home equity under unfavorable terms, often leading to financial distress or foreclosure. In this scenario, lenders may offer high-interest loans or fees that can result in the homeowner losing their equity and potentially their home. This practice exploits the borrower's home equity as a means to profit, rather than fostering financial stability.

Understanding equity stripping is crucial for borrowers as it highlights the risks associated with withdrawing home equity, especially when dealing with lenders who may not have the borrowers' best interests in mind. It differs significantly from legitimate equity-building strategies or refinancing options that are intended to benefit both the lender and the borrower. Recognizing this distinction helps individuals make informed decisions about their financing options.