|What is an underwater mortgage? A mortgage is considered "underwater" when the amount of the mortgage is greater than the current value of the home. Another term for this is "negative equity." For example, a person decides to buy a home for $200,000. They put 20 percent down, or $40,000, and then get a mortgage for the remaining $160,000. Usually home prices rise, but let's say prices begin to fall and the home is now valued at $150,000. The mortgage is "underwater" by $10,000.
Why use the term 'underwater'? Because the value of the home, which the mortgage funds, is below or under the mortgage amount, which could be considered the water line. It is just a metaphor that likely grew out of another metaphor: "drowning in debt."......................................Full Article: Source