Upside-Down Loans

Upside-Down Loans refer to loans on which the borrower owes more than the value of the asset for which the loan was used to purchase. Upside-down loans occur when the asset depreciates in value, or was overvalued when the buyer purchased the asset.  While it’s common for auto loans with small down payments to be “upside-down” initially due to the large depreciation which occurs during a new cars first two years, an increasing number of home mortgages are now “upside-down” due in large part to the downturn in the housing market which has occurred over the past 9 months.  The increasing number of “upside-down” mortgages has exacerbated the housing downturn as sub prime borrowers with increasing interest rates are unable to refinance as most lenders will not lend more than one hundred percent of the present value of a home.