Welcome to Professor Savings.com
We teach finance basics.
Hi, I’m your host today Rayfil Wong.
Today we’re talking about under water loans
Let’s get a formal definition followed by an example.
Under water loan occurs when the value of an asset used to secure a loan is less than the outstanding balance on the loan.
Let’s jump into an example.
Jane here just bought a house for $100,000 but only has 20% for down payment so needs to get a loan for $80,000 at the bank but noticed that lately the country’s bad economy has affected the housing prices so Jane discovers the value of her house dipping down to $70,000 below her loan of $80,000 so the house is under water.
Check the property value so you know the comparibles on zillow.com
Car and boats can also be consider underwater since there are interest and penalties on them their value is decreasing with time. before you buy cars or motorcycles check sources such as kelly blue book to calculate the value.
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Professor Savings signing off.