It is possible, although much less likely, to have negative equity in a home. This situation occurs when the property is valued at an amount less than the amount owed on the mortgage. If there has been deterioration in the neighborhood, property values may decline. Neglect of the home, resulting in cosmetic or structural damage, will also result in a declining property value and subsequently in negative equity. Natural disasters that damage the home and property can also lead to reduced property value and negative equity.

If you are considering re-mortgaging your home for the purpose of accessing cash through your home's equity, you should be aware of how this process works. Basically, it allows you to obtain another loan for your home, based on the home's current value. The first mortgage loan is paid off with the proceeds from the new mortgage loan and the homeowner is typically able to take the remaining funds (minus any fees) in order to finance other purchases or consolidate debts. The new mortgage loan will be for the amount of the old loan plus whatever equity the homeowner took in cash. In the event the homeowner defaults on the second loan, the effect will the same as if they had defaulted on the first loan; they will lose their home.