Negative equity is the difference between balance and equity. In other words, if you are applying for an equity loan and the balance owed on the home is greater than the value of the home, then this is called negative equity.
One of the loans you could take out to avoid negative equity is the 100% loan, provided that the home falls below the value worth. The loans that offer a portion of the current home value may be optional, since if the equity drops, you have lesser chance of paying more for the home, and the negative equity most likely wont have a lasting affect. The 100% loans are secured loans that often have increased interest rates. The lenders will often include the high rates in the event negative equity occurs to protect against loss.
The lenders will often include an indemnity guarantee, which is an insurance. In the event that the equity drops below value, the lender will still receive his money. The indemnities are often steep over the course of the loan.
Another area that the lender will consider is if the home is seated in an unusual area. It may become difficult to get an equity loan if the home is composed of aluminum, metal, concrete,...
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