How to Handle Underwater Mortgages: Strategies for Homeowners


The dream of homeownership can sometimes turn into a nightmare, especially when the value of your home sinks below what you owe on your mortgage. This situation, known as an “underwater mortgage” or “negative equity,” can feel suffocating and overwhelming. However, there are strategies homeowners can employ to navigate these murky waters and emerge with financial stability and peace of mind.

Understanding the Problem

An underwater mortgage occurs when the current market value of your home is less than the outstanding balance on your mortgage. This can happen for various reasons, such as a decline in property values, economic downturns, or purchasing a home with a low down payment. When faced with this situation, homeowners often feel trapped, unable to sell their home without incurring a significant loss or refinance to more favorable terms.

Strategies to Handle Underwater Mortgages

  1. Stay Calm and Assess Your Options: The first step is to remain calm and objectively assess your financial situation. Panicking or ignoring the problem will only exacerbate the issue. Take stock of your income, expenses, and assets to determine the best course of action.
  2. Contact Your Lender: Don’t suffer in silence. Reach out to your lender as soon as possible to discuss your situation. They may offer assistance programs or loan modification options to help you stay afloat. Some lenders are willing to negotiate terms, such as reducing interest rates or extending the loan term, to make payments more manageable.
  3. Explore Government Assistance Programs: Investigate government programs designed to aid homeowners facing financial hardships. For example, the Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP) were created to assist underwater homeowners in refinancing or modifying their mortgages to more affordable terms.
  4. Consider Strategic Default: While not an ideal solution, strategic default may be an option for homeowners who are deeply underwater and see no hope of recovering their home’s value in the foreseeable future. Strategic default involves intentionally ceasing mortgage payments with the understanding that foreclosure may be inevitable. However, it’s essential to weigh the long-term consequences and consult with a financial advisor or attorney before pursuing this route.
  5. Rent Out Your Property: If selling your home at a loss is not feasible, consider renting it out to generate income and cover mortgage payments. While becoming a landlord comes with its own set of challenges, it can provide temporary relief until the housing market improves or you’re in a better financial position to sell.
  6. Accelerate Mortgage Payments: If your financial situation allows, consider making extra payments towards your mortgage principal to build equity faster. This approach won’t change the market value of your home, but it can expedite the process of becoming “right-side up” on your loan.
  7. Seek Legal Advice: If you’re facing foreclosure or struggling to negotiate with your lender, seeking legal advice from a qualified attorney specializing in real estate law can provide valuable insights and protect your rights.


Dealing with an underwater mortgage can be daunting, but it’s not an insurmountable challenge. By staying proactive, exploring all available options, and seeking assistance when needed, homeowners can navigate these turbulent waters and emerge with their financial well-being intact. Remember, every situation is unique, so don’t hesitate to reach out for personalized guidance tailored to your specific circumstances. With patience, diligence, and a strategic approach, you can weather the storm and emerge stronger on the other side.

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