What Is an Underwater Mortgage?

[석수]

Underwater Mortgage



언더워터 underwater(수중의, 위험에 빠진, 손실상태의)

What Is an Underwater Mortgage?

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.



Key Takeaways

An underwater mortgage is a home loan that currently has a higher principal than the free-market value of the home.

Underwater mortgages can make it difficult for a borrower to refinance or sell the home.

Homeowners might choose to assess their home's value every year to learn if their mortgage is underwater. If so, borrowers can work with a mortgage refinance company.




언더워터 underwater

"손실상태의"라는 영어단어에서 유래한 말로 집값보다 대출금이 더 많은 상태에 있음을 이르는 말.

2008년 10월 31일 CNN의 보도에 따르면 모기지 대출을 받은 가구의 18%를 차지하는 763만 가구가 집값보다 대출금이 더 많아 현 시세대로 집을 팔 경우 대출금을 완전히 갚을 수 없고 별도로 돈을 더 마련해야 빚을 청산할 수 있는 것으로 나타났다.


under·water
물속의, 수중의

underwater creatures
수중 생물


Take a deep breath and see how long you can stay underwater.


Take a deep breath and see how long you can stay underwater.

숨을 한 차례 크게 들이쉬고 물속에서 얼마나 오래 있을 수 있는지 한번 보아라



What Is an Underwater Mortgage?

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.



Key Takeaways

An underwater mortgage is a home loan that currently has a higher principal than the free-market value of the home.

Underwater mortgages can make it difficult for a borrower to refinance or sell the home.

Homeowners might choose to assess their home's value every year to learn if their mortgage is underwater. If so, borrowers can work with a mortgage refinance company.





What to do if you have an underwater mortgage


Sometimes, it’s hard to feel like you made a good investment by buying a home — especially if you owe more on your mortgage than your house is currently worth. This is known as being underwater on your mortgage, and nearly 600,000 people in the United States are in this position, according to a recent report by Ice Mortgage Technology.

We’ll explain why and how an underwater mortgage happens, your options for refinancing, and how to sell your house while underwater on a mortgage.



Yes. However, if you sell your home when you have an underwater mortgage, you probably won’t earn enough from the sale to pay off your mortgage when you move. You’ll likely have to pay off the outstanding principal balance, convince your lender to agree to a short sale, or foreclose on the property.


What is an underwater mortgage?

If your outstanding mortgage balance is higher than your property value, you technically have an underwater mortgage (also known as an “upside-down mortgage”). However, this doesn’t mean you owe more than you borrowed, and your remaining mortgage principal balance hasn’t changed. An underwater mortgage can just happen if you bought your home in a competitive market and paid more than market value in a bidding war. You can also go underwater on your mortgage if housing market prices drop after you buy the home.

For instance, let’s say you bought your home last year for $400,000 and borrowed $380,000 with a mortgage. Over several months, home prices in your neighborhood drop, and the current value of your home is $370,000. You are underwater for $10,000, but this doesn’t change your mortgage payoff schedule.

How does an underwater mortgage affect home equity loans and HELOCs?

If you have an underwater mortgage, you likely won’t be able to get a home equity loan or home equity line of credit (HELOC) anytime soon. These second mortgages often require you to have at least 15% to 20% equity in your house. If you have negative equity with an underwater mortgage, you won’t qualify for a home equity loan or HELOC.

If you need to borrow money, you’ll likely need to consider credit cards or personal loans instead. But this could also be a good time to go through your budget and compare auto and homeowners insurance policies, cell phone companies, and cable and utility providers to lower your bills and improve your financial situation.




Underwater mortgage FAQs
What happens if a mortgage is underwater?


If your mortgage is underwater and you want to keep living in the home, nothing happens. You continue paying down your mortgage principal as usual.

Should you sell your home if you have an underwater mortgage?

The answer depends on why you want to sell and if you have the finances to keep making the mortgage payments. Do a thorough financial and lifestyle assessment before making this decision because selling when your mortgage is underwater is tough.

Can a home loan go underwater?

Yes, a home loan can go underwater, especially if home values drop in your area and you end up owing more than the home is currently worth.

How do I get an underwater mortgage?

Underwater mortgages occur when you buy a home for more than its value or when property values drop, resulting in you owing more on your home loan than the house is worth.

Can you sell your home with an underwater mortgage?

Yes. However, if you sell your home when you have an underwater mortgage, you probably won’t earn enough from the sale to pay off your mortgage when you move. You’ll likely have to pay off the outstanding principal balance, convince your lender to agree to a short sale, or foreclose on the property.





How an Underwater Mortgage Works

Underwater mortgages were a common problem among homeowners around the height of the 2008 financial crisis, which, among other things, involved a substantial deflation in housing prices.

1

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.

2

Depending on the decrease in the home's value 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. A borrower with a $250,000 mortgage that sees their home value decrease to $225,000 is considered to have an underwater mortgage. If the borrower has paid half of the principal on their mortgage loan resulting in a principal balance of $125,000, then they still are considered to have positive equity of $100,000 which could be utilized in a home equity loan.


Loan-to-value (LTV) ratio is a measure of how much money you've borrowed compared to the value of your home. A lower LTV ratio is generally better because it can lead to lower interest rates and more affordable loans.

How to calculate LTV

Divide the amount you're borrowing by the appraised value of your home
Convert the decimal result to a percentage by moving the decimal two places to the right

How to improve LTV

Make a larger down payment
Choose a less expensive home
Get a piggyback loan, which is an additional mortgage on top of your primary loan
Choose a shorter loan term

LTV and mortgage applications

Lenders use LTV ratio as one of many factors to determine whether to approve a mortgage application. They also consider your income and creditworthiness.

What's considered a good LTV?

Ideally, you'd have an LTV under 80%. However, there are mortgages available for people with LTVs as high as 95%.



"underwater"

수중의

Seals can stay underwater for a long time.
바다표범은 오랫동안 잠수할 수 있습니다.


This plant grows underwater.
이 식물은 수중에서 자란다.

Its most popular feature is 'The Underwater Room'.
그곳의 가장 유명한 특징은 '수중 방(The Underwater Room)'이다.

Most of it is underwater, however.
그것의 대부분은, 그러나, 물 속에 있다.

It can also be played underwater.
그것은 물속에서도 할 수 있다.

Arnaud Jerald loves to be underwater.
아르노 제랄드(Arnaud Jerald)는 물속에 있는 것을 대단히 좋아한다.

But others are looking down — underwater.
하지만 다른 사람들은 아래 — 수중을 보고 있습니다.

In 2021, the Museum of Underwater Sculpture opened around 200 meters from the beach.
2021년에 수중 조각품 박물관(Museum of Underwater Sculpture)이 바닷가에서 약 200미터 떨어져 개관했습니다.

It's like we're part of this underwater world!
우리가 이 바닷속 세계의 한 부분인 것 같아요

And it can now also be enjoyed underwater!
그리고 그것은 이제 물속에서 또한 즐겨질 수 있습니다!