#55 Negative Equity; What is it & what to do about it

Negative equity is a term most of us haven't heard in a while but is becoming a real possibility for some homeowners, especially those that brought in the last 12-18 months.

But what exactly is it?

Negative equity is when the property you own is worth less than the mortgage you owe against it.

For example, you buy a property for $ 1.2 million, your mortgage is $ 1 million but then the house price drops to $900,000 - you now have $100,000 of negative equity.

Is this a problem?

Not really - only if you need to sell the property at a loss.

And if that happens the $100,000 that you owe the bank will turn into a personal loan that you will need to slowly pay off, at a higher interest rate.

You want to avoid that like the plague because your chances of buying again anytime soon and having to save a deposit again will be close to zero.

So if you are in this position; with increasing interest rates and living costs, you don't really have too many options; but here are three..

1. Grin and bear it, house prices will go back up.

2. Ask for an interest-only period, or mortgage holiday (more on these in our previous podcast here)

3. Figure out a way to increase your income (work more, get a flatmate)

We go into this a lot deeper in our podcast so have a listen here

Need help?

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