Some unexpected events that arise during residence ownership are less pleasant than others. If you have just discovered that the amount still owed on your mortgage is greater than the value of your residence, you may have what is recognized as an underwater mortgage, which is sometimes referred to as an upside-down mortgage.

Don’t get too worked up if you hold a mortgage that is upside down. You can choose from a few different approaches to solving the problem. This post explains how a mortgage can go underwater and provides direction on how to assert if you hold an upside-down mortgage, and how to avoid one.

What Exactly Is an Underwater Mortgage?

It is claimed that a loan is “underwater” when the present value of the residence is lower than the amount that is still outstanding on the mortgage on that residence. 

To phrase it another way, a mortgage that is underwater is one in which the amount of the outstanding principal balance is greater than the value of the residence on the market. Being “upside down” or having “negative equity” in a residence is another term for this predicament that a residence owner may find themselves in.

When residence values drop, residence owners who hold little or negative residence equity could find themselves in this predicament even if they have been on time with all of their mortgage settlements.

How to Know If Your Mortgage Is Underwater?

It is not difficult to assert whether or not you hold a mortgage that is underwater. Take a few slow, deep breaths, and then proceed with the following three easy steps:

  1. Find out how much you are still responsible for paying on your mortgage. You should be able to retrieve this information on your most current mortgage statement or in your online account. In the event that you are incapable to retrieve it, you can always obtain this documentation from the monetary institution that administers your mortgage loan.
  1. Determine the current market value of your residence. There are a number of methods that may be used to calculate the worth of your residence; however, some of these methods will be more precise than others. 

    Talk to an expert real estate professional in your region if all you need is an estimate of the value of the residence you’re interested in buying. Employing an appraiser is your best bet if you want a more specific number to work with.
  1. To assert how much equity you hold in your residence at the present time, deduct the amount you still owe on it. If the amount you owe on your mortgage is $300,000, but the value of your residence is just $245,000, you are considered to be $55,000 underwater on your residence.

What to Do If Your Mortgage is Underwater? Here Are Your Options:

Make sure you’ve given careful consideration to all of the following options before you back down from a mortgage commitment:

Stay put 

If you don’t have to move because of your job or your family, staying put in your residence and keeping an eye on its value to see if it goes up over time is one of the simplest ways you can do it. It is possible that the valuation of your residence will rise as a result of shifting market conditions, resulting in positive equity for you.

Refinance your mortgage

Refinancing is not an option for selling your residence if it is now valued at less than what is owed on the mortgage; however, it can be a smart answer for providing some alleviation in the form of a reduced interest rate and a cheaper installment each month. Something like this has the potential to alleviate the discomfort of being underwater.

But there’s a problem.  Before they will consider approving your request for a mortgage refinance, the majority of mortgage creditors ask that you hold a minimum equity position of 20% in your residence. If you are underwater on your mortgage, though, you will hold negative equity rather than positive equity.

Short-sale your residence

If you really have to sell your residence despite the fact that you are underwater on your mortgage, you may be able to persuade your creditor to authorize a short sale.

Your mortgage creditor may consent to a “short sale,” in which case they will allow you to sell your residence for an amount that is lower than what you owe on the mortgage. In this kind of sale, you hold more leeway in setting the price of your residence in order to move it more quickly.

However, short sales often provide a number of challenges. Any offer that you get must first be approved by your creditor, even if you believe the offer to be favorable. If an offer is turned down by your creditor, the sale of your residence will not go through.

Lenders who stand to lose fewer proceeds in the long run from foreclosure may be unwilling to negotiate a short sale with you.

It is important to bear in mind that a short sale will result in a lower credit score for you, so plan accordingly. If you have a short sale on your credit history, it will be extremely difficult for you to obtain another mortgage in the coming years.

Declare Bankruptcy

After struggling monetarily for a while, filing for bankruptcy allows you to start over with a clean slate in your monetary life. In the event that you are incapable to make any of the other choices work for you, you should speak with a bankruptcy attorney to assess whether or not this legal technique can assist you with your underwater residence.


In the event that you are incapable to keep up with the settlements on your mortgage, the creditor may exercise their right to foreclose on the residence. You are going to be compelled out of your residence if you are still occupying it. 

After that, the lending institution will aim to recuperate as many proceeds as they can by selling the residence as rapidly as they possibly can. You definitely do not want to put yourself through that!

To prevent your residence from going into foreclosure, you should give it your all. You don’t want to put yourself through the mental and emotional anguish of being evicted from your residence. 

In addition to this, most creditors will want you to wait a period of seven years before offering you another mortgage. If you are having trouble paying the mortgage on your residence, you should contemplate foreclosure only as a very last resort, after you have exhausted all other possibilities.

What Are the Risks of an Underwater Mortgage?

If you do not hold any equity in the residence or if you hold negative equity, this can lead to a number of issues, including the inability to refinance your mortgage and even the possibility of losing your residence.

  1. Refinancing. If you hold negative equity in your residence, refinancing your loan is not an option for you. Before you may refinance your mortgage, the majority of creditors will want you to hold a certain amount of equity in your residence.
  1. Selling. If your mortgage balance is more than the value of your residence, you can also have trouble selling your residence. When you sell your residence, you should utilize the remaining proceeds from the sale to pay off any outstanding debt, such as an existing mortgage.

    When you are behind on your settlements, though, it’s possible that you won’t be able to borrow enough proceeds to pay off the remaining balance of your principal. 

    This leaves you with just two choices: you can either continue living in your residence while continuing to make settlements or you may sell the residence and cover the remaining cost with the proceeds you have saved. A short sale of your residence is one option that you could contemplate pursuing as a potential solution.
  1. The Possibility of a Foreclosure. Foreclosure is also more likely to occur in situations where the debtor’s mortgage balance is underwater. In the event that you fall too far behind on your mortgage settlements and the bank decides to seize your residence, you will have experienced a foreclosure.

    If you are incapable to refinance your mortgage and are having difficulties rendering your settlements, you may be compelled to foreclose on your residence.

How to Avoid an Underwater Mortgage?

Even if you can’t prevent your mortgage from becoming underwater, you still hold a chance to try to pull it out below by following these steps.

  1. Paying down your mortgage is a top priority. Reducing your mortgage balance is one possibility. However, it’s not always a smart idea to pay more than the required amount on your mortgage. If you also hold other high-interest loans, for instance, you may wish to tackle those first.

    If you hold a conventional loan, recasting your mortgage may be your only choice for reducing your monthly installment as a result of principal reduction.
  1. Put funds into renovations for your residence. Repairing any damage or rendering any necessary upgrades to your residence could also help boost its value.

    To maximize your return on investment, it’s important to think about the most cost-efficient upgrades to make. Do-it-yourself projects can be a good method to add value to your residence if you hold the time and expertise.

Bottom Line

If you hold a mortgage but your residence is valued less than what you owe, you are “underwater.” If you’re currently experiencing difficulty executing mortgage settlements, there are a few options for you. 

However, staying in your residence until either the housing market recovers to a point where you are no longer underwater or you settled enough of the principal on your own is the best choice. 

You could contemplate options such as short sales or strategic defaults if you need to leave in an absolute hurry; nevertheless, your credit will suffer as a result of using any of those alternatives.


But I must explain to you how all this mistaken idea of denouncing pleasure and praising pain was born and I will give you a complete account of the system, and expound the actual teachings of the great explorer of the truth, the master-builder of human happiness. No one rejects, dislikes, or avoids pleasure itself, because it is pleasure, but because those who do not know how to pursue pleasure rationally encounter consequences that are extremely painful.

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