Among homeowners during the peak of the 2008 financial crisis, which along with other issues, led to a substantial deflation in housing prices underwater mortgages were a common problem.
Even supposing the market has very much recovered because of the support from monetary policy and interest rate stabilization when making a real estate investment underwater mortgages are yet a factor that property owners must follow closely.
When the value of the home is less than the original mortgage principal that is the time when a mortgage is considered underwater.
Based on the declining value of the home since its purchase, there is a possibility that the borrower may have no equity or negative equity.
Equity on a home is related to the value of the home against the balance paid.
If a borrower’s home value is $325,000 and he has a mortgage of $350,000 then it is considered to have an underwater mortgage.
If half of the principal on their mortgage loan has been paid by the borrower and the principal balance is $175,000, then they still are considered to have an equity of $150,000 that the borrower can take advantage of in a home equity loan.