Negative Equity Calculator
Use this tool to calculate the amount of negative equity on an asset, such as a car or a home. Negative equity occurs when the amount you owe on a loan is higher than the current market value of the asset securing the loan.
Calculate Your Negative Equity
Understanding Negative Equity
What is Negative Equity?
Negative equity, often called "underwater" or "upside down," means the value of an asset (like a house or car) is less than the outstanding balance on the loan used to purchase that asset. For example, if you owe $25,000 on a car that is currently worth $20,000, you have $5,000 in negative equity.
How is it Calculated?
The calculation is simple:
Negative Equity = Current Outstanding Loan Balance - Current Market Value of Asset
If the result is a positive number, that's your negative equity amount. If the result is zero or a negative number, you have zero or positive equity.
Why Does it Happen?
- Asset Depreciation: Assets like cars depreciate quickly, especially in the first few years. If the loan principal isn't paid down faster than the depreciation, negative equity can occur.
- Market Value Decline: This is common in real estate. If housing prices fall after you buy a home, its market value might drop below your mortgage balance.
- Large Loans / Low Down Payments: Borrowing a high percentage of the asset's value increases the risk of going underwater.
- Adding Costs to the Loan: Rolling taxes, fees, or even previous negative equity into a new loan increases the loan balance faster than the asset value can keep up.
What Does it Mean?
Having negative equity can make it difficult or impossible to sell the asset without owing money to the lender after the sale. It can also impact your ability to refinance or borrow against the asset's value.
Negative Equity Examples
Click on an example to see the scenario and calculation:
Example 1: Car Loan
Scenario: You owe $18,000 on a car that is currently worth $15,000.
1. Loan Balance: $18,000
2. Market Value: $15,000
3. Calculation: Negative Equity = $18,000 - $15,000 = $3,000
Conclusion: You have $3,000 in negative equity.
Example 2: Mortgage (Market Decline)
Scenario: Your mortgage balance is $200,000, but due to a market downturn, your home is now valued at $175,000.
1. Loan Balance: $200,000
2. Market Value: $175,000
3. Calculation: Negative Equity = $200,000 - $175,000 = $25,000
Conclusion: You have $25,000 in negative equity.
Example 3: Car Loan (Zero Equity)
Scenario: You owe $10,000 on a car, and its current market value is also $10,000.
1. Loan Balance: $10,000
2. Market Value: $10,000
3. Calculation: Negative Equity = $10,000 - $10,000 = $0
Conclusion: You have zero negative equity (and zero positive equity).
Example 4: Mortgage (Positive Equity)
Scenario: Your mortgage balance is $150,000, and your home's market value is $180,000.
1. Loan Balance: $150,000
2. Market Value: $180,000
3. Calculation: Negative Equity = $150,000 - $180,000 = -$30,000
Conclusion: The result is negative, indicating positive equity ($30,000). You have zero negative equity.
Example 5: Rolling Over Negative Equity
Scenario: You traded in a car with $3,000 negative equity, which was rolled into a new car loan. The new loan balance is $30,000. The new car's market value is $28,000.
1. Loan Balance: $30,000 (includes the rolled-over amount)
2. Market Value: $28,000
3. Calculation: Negative Equity = $30,000 - $28,000 = $2,000
Conclusion: You currently have $2,000 in negative equity on the new car.
Example 6: RV Loan
Scenario: You owe $65,000 on an RV that is currently valued at $58,000.
1. Loan Balance: $65,000
2. Market Value: $58,000
3. Calculation: Negative Equity = $65,000 - $58,000 = $7,000
Conclusion: You have $7,000 in negative equity on the RV.
Example 7: Boat Loan
Scenario: The loan balance on your boat is $45,000, and its market value is $50,000.
1. Loan Balance: $45,000
2. Market Value: $50,000
3. Calculation: Negative Equity = $45,000 - $50,000 = -$5,000
Conclusion: The result is negative, indicating positive equity ($5,000). You have zero negative equity.
Example 8: Second Mortgage/HELOC
Scenario: You have a first mortgage of $150,000 and a HELOC with a $30,000 balance. Your home is valued at $170,000. (Looking at total debt vs. value)
1. Total Loan Balance: $150,000 + $30,000 = $180,000
2. Market Value: $170,000
3. Calculation: Negative Equity = $180,000 - $170,000 = $10,000
Conclusion: Considering both loans, you have $10,000 in negative equity on the home.
Example 9: Quick Sale Scenario
Scenario: You need to sell an asset quickly. The loan balance is $7,500. The highest offer you've received reflects a market value of $6,000.
1. Loan Balance: $7,500
2. Market Value (based on offer): $6,000
3. Calculation: Negative Equity = $7,500 - $6,000 = $1,500
Conclusion: You would have $1,500 in negative equity to cover if you accept this offer.
Example 10: Low Down Payment
Scenario: You bought an asset for $40,000 with a $1,000 down payment, so the initial loan was $39,000. A year later, you've paid $3,000 principal, so the loan is $36,000. The asset depreciated to $34,000.
1. Current Loan Balance: $36,000
2. Current Market Value: $34,000
3. Calculation: Negative Equity = $36,000 - $34,000 = $2,000
Conclusion: Despite payments, you have $2,000 in negative equity due to rapid depreciation and low initial equity.
Frequently Asked Questions about Negative Equity
1. What exactly is negative equity?
Negative equity is when the amount you owe on a loan secured by an asset is more than the current market value of that asset.
2. How is negative equity calculated?
It's calculated by subtracting the asset's current market value from your current outstanding loan balance. If the result is positive, that's the negative equity amount.
3. Does this calculator handle positive equity?
Yes. If your loan balance is less than or equal to the market value, the calculation will result in zero or a negative number. The tool will display "0" negative equity, indicating you have zero or positive equity.
4. What causes negative equity on a car?
Cars depreciate quickly. Taking out a large loan, making a small down payment, or rolling over previous negative equity can mean the loan balance doesn't decrease as fast as the car loses value.
5. What causes negative equity on a home?
This usually happens when home values in the area decline significantly after you've purchased the home. Taking out a large mortgage (low down payment) also increases the risk.
6. Is negative equity always bad?
It's not ideal, but it's most problematic if you need to sell the asset. If you can continue making payments and hold onto the asset, you can eventually regain positive equity as the loan balance decreases over time (assuming value stabilizes or recovers).
7. Can I sell an asset if I have negative equity?
You can, but you will need to pay the difference between the sale price (market value) and the outstanding loan balance out of pocket to satisfy the lender.
8. Can I refinance if I have negative equity?
It can be difficult to refinance the full loan amount with negative equity. Some lenders may offer specific programs or require additional collateral or private mortgage insurance.
9. Are there government programs to help with negative equity?
In the past, there were programs like the HAMP principal reduction alternative for mortgages, but availability changes. It's best to research current options or talk to your lender.
10. What are 'underwater' or 'upside down' loans?
These are common terms used to describe a loan where the borrower has negative equity.
