Finance
What is 'negative equity' (underwater mortgage) and has it been a significant issue in Hawaii?
AA. Negative equity occurs when loan balance exceeds property value; Hawaii experienced this during national downturns but its strong market has generally kept negative equity lower than mainland areas✓ Correct
BB. Negative equity has never occurred in Hawaii due to consistent property appreciation
CC. Negative equity is a California-specific phenomenon with no Hawaii relevance
DD. Negative equity only affects commercial properties in Hawaii
Explanation
Negative equity occurs when the outstanding mortgage exceeds the property's current market value. Hawaii did experience negative equity during the early 1990s downturn and following the 2008-2009 financial crisis.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Deed of TrustA security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.
Math Concepts
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