how negative equity works
to understand negative equity we must first understand positive equity or rather as it is commonly referred to home equity home equity is the value of a homeowner s interest in their home it is the real property s current market value less any liens or encumbrances that are attached to that property this value fluctuates over time as payments are made on the mortgage and market forces play on the current value of that property if some or all of a home is purchased by means of a mortgage the lending institution has an interest in the home until the loan obligation has been met home equity is the portion of a home s current value that the owner possesses free and clear home equity can be accumulated by either a down payment made during the initial purchase of the property or with mortgage payments as a contracted portion of that payment will be assigned to bring down the outstanding principal still owed owners can benefit from property value appreciation as it will cause their equity value to increase 