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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".
For example, let’s say that your current mortgage loan balance is $360,000. But your home is only worth $300,000. In that case, you would have negative equity of $60,000.
By itself, negative equity isn't necessarily trouble. Those who can afford their monthly mortgage payments and have a Negative Equity: Options If You're Upside Down in Your Mortgage
For example, if you had an outstanding loan balance of $250,000 and your home appraised for $235,000, you’d have negative equity. It’s not a great state to be in.
This is most commonly done for nonrecourse loans, where the creditor cannot make other claims on the debtor; a common example is a situation of negative equity on a mortgage loan in common law jurisdictions such as the United States, which is in general non-recourse. In this latter case, default is colloquially called "jingle mail"—the debtor ...
Negative amortization loans can be high risk loans for inexperienced investors. These loans tend to be safer in a falling rate market and riskier in a rising rate market. Start rates on negative amortization or minimum payment option loans can be as low as 1%. This is the payment rate, not the actual interest rate.
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