Negative Equity


DEFINITION of 'Negative Equity'

When the value of an asset falls below the outstanding balance on the loan used to purchase that asset. Negative equity is calculated simply by taking the value of the asset less the balance on the outstanding loan.

BREAKING DOWN 'Negative Equity'

Negative equity often occurs when a homeowner purchases a house using a mortgage and then the economy starts to slow or home prices start to drop. After the house purchase, the value of the home decreases below the value of the amount owed on the mortgage, causing negative equity.

  1. Equity

    Equity is the value of an asset less the value of all liabilities ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Negative Goodwill

    A gain occurring when the price paid for an acquisition is less ...
  4. Property

    1. Anything over which a person or business has legal title. ...
  5. Negative Amortization

    An increase in the principal balance of a loan caused by making ...
  6. Asset

    1. A resource with economic value that an individual, corporation ...
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