Definition
Negative equity occurs when you owe more on the mortgage than the home is worth. Also called being 'underwater' or 'upside down.' This commonly happens when property values decline.
Not sure where this fits?
Answer a few questions and we’ll open the path that fits, at the right step.
Find my pathAbout this term
Negative equity creates significant challenges for homeowners. It can prevent refinancing opportunities, limit the ability to sell the home (as the sale proceeds won't cover the mortgage debt), and complicate moves to new locations. During real estate market downturns, many homeowners may find themselves in this position. However, patience and continued mortgage payments can eventually restore positive equity as property values recover.
Pro Tip
If you have negative equity, focus on long-term wealth building through consistent mortgage payments.
Example
A homeowner purchased a home for $300,000 with a $270,000 mortgage. If the home's value drops to $250,000, they now have negative equity of $20,000.