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Negative equity isn’t necessarily a bad thing, as long as you’re not planning on selling or refinancing in the near future. — Ken Sisson Realtor and associate broker, Coldwell Banker Realty .
Negative equity is a deficit of owner's equity, occurring when the value of an asset used to secure a loan is less than the outstanding balance on the loan. [1] In the United States, assets (particularly real estate, whose loans are mortgages) with negative equity are often referred to as being "underwater", and loans and borrowers with negative equity are said to be "upside down".
Negative equity The status of a homeowner whose outstanding mortgage debt is larger than the property’s current worth. For example, if your house’s fair market value is $300,000, but you owe ...
Being in such a state of negative equity is rare, but it can happen, if there’s a sharp prolonged drop in local real estate prices, and you’re carrying a substantial amount of debt.
A strategic default is the decision by a borrower to stop making payments (i.e., to default) on a debt, despite having the financial ability to make the payments.. This is particularly associated with residential and commercial mortgages, in which case it usually occurs after a substantial drop in the house's price such that the debt owed is (considerably) greater than the value of the ...
The term balance sheet derives from an accounting equation that holds that assets must always equal the sum of liabilities plus equity. If asset prices fall below the value of the debt incurred to purchase them, then the equity must be negative, meaning the consumer or business is insolvent.
Aggressive lending practices fueled the housing boom, and the availability of generous sums of mortgage and home equity money left borrowers with more debt and less equity than ever before.
When interest rates rise, a reasonable question is how much house prices will fall, and what effect this will have on those holding negative equity, as well as on the U.S. economy in general. The salient question is whether interest rates are a determining factor in specific markets where there is high sensitivity to housing affordability.