Learn personal and professional finance terms to keep you in the know
An underwater mortgage, also known as being "upside-down," occurs when you owe more on your mortgage than your home’s current market value. This can happen when home values decline, as they did sharply during the 2008 financial crisis, or if you purchased with a very small down payment and values have since dropped.
Being underwater doesn't necessarily mean you need to take immediate action if you can still afford your payments and plan to stay in the home long-term, since values may recover over time. However, it becomes a serious problem if you need to sell, refinance, or can no longer afford your payments. Options for underwater homeowners may include a loan modification, a lender-approved short sale, or in severe cases, foreclosure or a deed-in-lieu.
