Negative Equity
Negative equity is a financial term used to describe a situation in which the value of an asset is less than the outstanding balance on the loan used to purchase it. This situation can occur when the value of the asset falls, or when the loan balance increases due to additional borrowing or fees. Negative equity is also known as being “underwater” or “upside down” on a loan.
History of Negative Equity
The term “negative equity” has been used since the early 2000s, when the housing market began to decline. As home prices fell, many homeowners found themselves in a situation where they owed more on their mortgage than their home was worth. This situation was referred to as being “underwater” or “upside down” on their loan.
Negative equity can also occur in other types of loans, such as car loans or student loans. In these cases, the value of the asset (the car or the degree) is less than the amount of the loan.
Table of Comparisons
| Asset | Value | Loan Balance | Equity |
|---|---|---|---|
| Home | $200,000 | $220,000 | -$20,000 |
| Car | $15,000 | $20,000 | -$5,000 |
| Student Loan | $0 | $30,000 | -$30,000 |
Summary
Negative equity is a financial term used to describe a situation in which the value of an asset is less than the outstanding balance on the loan used to purchase it. This situation can occur when the value of the asset falls, or when the loan balance increases due to additional borrowing or fees. Negative equity can occur in a variety of situations, including mortgages, car loans, and student loans. For more information on negative equity, visit websites such as Investopedia, Bankrate, and The Balance.
See Also
- Equity
- Mortgage
- Car Loan
- Student Loan
- Default
- Foreclosure
- Refinancing
- Debt-to-Income Ratio
- Credit Score
- Loan Modification
