eli5 What does it mean to be “upside down” on your home loan and how does it happen?
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Being upside down on a loan means you owe more money on the loan than the thing is actually worth. It’s more common in the car loan world because people take out 8 year loans on vehicles they can’t actually afford.
By year 5 you probably still owe $30,000 on a vehicle you could only sell for $10,000.
You’re ‘upside down’ because you can’t just sell the asset to pay down the rest of the loan. In my example above, even if you sold your car for $10,000 and put all that money towards the loan, you still owe the bank $20,000.
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