Negative equity is a term used to describe the financial situation of a homeowner who is unable to pay off their mortgage loan because the value of their property is less than the amount of money they owe on it. Negative equity typically arises during economic downturns, such as a recession or depression, when the real estate market experiences a decrease in property values.

When the value of a property falls below the balance of a loan that was used to purchase it, the homeowner is said to have negative equity, or to be “underwater.” With negative equity, the homeowner may not be able to sell the property, or if the homeowner does manage to sell the property, they likely will not be able to pay off the loan balance with the sale proceeds. As a result, the homeowner may still owe the lender money after the sale of the property.

Negative equity has become increasingly common since the start of the COVID-19 pandemic. During the pandemic, real estate markets have taken a hit, and property prices have plummeted. In many cases, this has put homeowners underwater--they owe more on their mortgage loan than the property is worth, making it difficult for them to sell their home and get out of debt.

Negative equity can be difficult to overcome, but there are options available to help homeowners facing this problem. They can attempt to refinance their property, take out a home equity loan, or even consider renting out the home in order to generate additional income. Additionally, some lenders may be willing to work with underwater homeowners to help them reduce the principal balance of the loan and avoid foreclosure.

It’s important to remember that there is hope if you find yourself in a negative equity situation. While it may be daunting to try to figure out what to do, there are resources available to help homeowners in this difficult situation. It’s important to take the necessary steps to deal with negative equity and take control of your finances again before it’s too late.