Dont understand negative equity.

T

tina4

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I cant get my head around this. Is the house in negitive equity when the price drops below what you payed or the value at the time on the open market. So lets say the house was valued at 400 and bought for 200, then the price is now 300 is it negitive equity, or is it only if it drops below the 200. God im confusing myself here.
 
Re: Dont understand negitive equity.

Put simply, negative equity is when you owe more for the house than what the house is worth.
 
Re: Dont understand negitive equity.

Hi Tina,

In the example you gave it would be negative equity if the value dropped below 200.
 
Equity in a property is the value of the property minus any outstanding mortgage. You have negative equity when your mortgage is bigger than the current value (as Baldyman27 says - nathan210705 is wrong).

Your examples above do not have enough information to say whether the house is in negative equity. It's in negative equity only if (through remortgaging) your mortgage is now over €300k. What it was worth at any other time is basically irrelevant.
 
Example of negative equity:

You buy house for €250,000 in 2005 with 90% mortgage of €225,000.

In 2008 house worth €400,000, mortgage is now €210,000. Your "equity" is €400,000 less €210,000 = €190,000.

In 2009 house worth €190,000, mortgage is now €200,000. Your "equity" is €190,000 less €200,000 = - €10,000 i.e. you now have negative equity.

In simple terms when you owe more to the bank on your mortgage than your house is worth you are in negative equity. It has nothing to do with what you paid originally or how high it got during the boom.

Negative equity is only an issue if you run into trouble paying your mortgage, want to switch mortgage providers, increase mortgage etc. If you can continue paying your mortgage over the next few years you should be able to ride out the dip.
 
Simple maths:

"House Value - Outstanding Mortgage = €1 or more" then you are in positive equity
"House Value - Outstanding Mortgage = less then €0" then you are in negative equity
 
BRICKTOP said:
... Negative equity is only an issue if you run into trouble paying your mortgage, want to switch mortgage providers, increase mortgage etc. If you can continue paying your mortgage over the next few years you should be able to ride out the dip.
Click to expand...

That's worth repeating. I'll add that negative equity is also a problem if you have to sell your property.

But if your attention is focused on your home, and your only concern is to continue living there, negative equity is fairly unimportant.
 
Thanks for the replys. I was just curious cause theres alot of talk about affordable homes and negitive equity and i just didnt understand.
So regardless of previous price negitive equity applys were the mortgage is larger than the present value.
So mortgage 200, value 180 = negative equity
and mortgage 200, value 210 = not negative.
Thats grand thanks.
 
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