Underwater Mortgages

An underwater mortgage occurs when a homeowner owes more on their mortgage than their property is currently worth. This situation often arises during economic downturns or housing market crashes, where property values decline. For example, if a home is purchased for $300,000 but its market value drops to $250,000, the owner is "underwater" by $50,000. This can lead to financial stress, making it challenging to sell or refinance the home without incurring losses. Homeowners in this situation may face difficulties in managing their finances, potentially leading to foreclosure if they cannot keep up with payments.