What is "loan stacking"?

Loan stacking refers to the practice of taking multiple loans secured by the same property. This strategy is often employed by borrowers who seek to leverage their existing equity or to access additional funds without going through a full refinance process. Loan stacking can occur when a borrower acquires a primary mortgage and subsequently takes out additional loans, such as home equity lines of credit (HELOCs) or second mortgages, while still maintaining the original mortgage.

This practice can be advantageous for homeowners looking to finance home improvements, cover large expenses, or manage cash flow, as it allows them to access significant funds. However, it can also increase the total debt burden and associated risks if not managed properly, as the borrower becomes responsible for multiple repayments across different loans.

The other choices refer to different financial actions. Consolidating multiple loans involves combining them into a single loan to simplify payments and often to secure a lower interest rate. Refinancing an existing loan is focused on replacing an old loan with a new one, typically to achieve better terms. Reducing borrowing costs is a general strategy that could involve various techniques, but it does not specifically capture the essence of taking multiple loans on the same property, which is the fundamental aspect of loan stacking.