Measure content performance. Develop and improve products. List of Partners vendors. Part of. Deciding to Refinance. Getting the Loan. Special Circumstances. Table of Contents Expand. Table of Contents. Refinancing Options. Other Options for Relief. Wait It Out? By Justin Pritchard. Justin Pritchard, CFP, is a fee-only advisor and an expert on personal finance. He covers banking, loans, investing, mortgages, and more for The Balance. He has an MBA from the University of Colorado, and has worked for credit unions and large financial firms, in addition to writing about personal finance for more than two decades.
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Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. An underwater mortgage is a home purchase loan with a higher principal than the free-market value of the home. This situation can occur when property values are falling.
In an underwater mortgage, the homeowner may not have any equity available for credit. An underwater mortgage can potentially prevent a borrower from refinancing or selling the home unless they have the cash to pay the loss out of pocket.
Underwater mortgages were a common problem among homeowners around the height of the financial crisis, which among other things, involved a substantial deflation in housing prices. While the market has greatly recovered due to support from monetary policy and interest rate stabilization, underwater mortgages are still a factor that property owners must follow closely when making a real estate investment.
Generally, a mortgage is considered underwater when the value of the home is less than the original mortgage principal. Depending on the decrease in the value of the home since its purchase, the borrower may also have no equity or negative equity. Equity on a home is associated with the value of the home versus the balance paid. The financial crisis had numerous effects on the U.
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