Multiple choice general knowledge

What is negative equity

  1. Value of the asset used to secure loan is indirectly proportional to outstanding balance of the loan

  2. Value of the asset used to secure loan is equal to outstanding balance of the loan

  3. Value of the asset used to secure loan is greater than outstanding balance of the loan

  4. Value of the asset used to secure loan is less than outstanding balance of the loan
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Negative equity occurs when the outstanding loan balance exceeds the current market value of the asset securing the loan. This is common in underwater mortgages where home prices have fallen below the mortgage amount. The borrower owes more than the asset is worth, making it difficult to sell without loss.

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