What is often the result of being in an underwater mortgage situation?

Being in an underwater mortgage situation typically means that the homeowner owes more on the mortgage than the current market value of the home. This situation can lead to a variety of financial struggles for the homeowner, with foreclosure being a significant risk. When a borrower is underwater, they may face difficulties in selling the home or refinancing the mortgage, leading to potential missed payments if they cannot manage their financial obligations. In extreme cases, homeowners may choose to walk away from the property, which can initiate foreclosure proceedings by the lender.

The other options, although related to housing values and mortgages, do not capture the primary consequence of being underwater. Increased home value over time is unlikely in an underwater situation, and refinancing rates do not automatically become higher simply due to being underwater; instead, they reflect the market conditions. Additionally, lenders do not typically decrease the mortgage balance on their own without the homeowner’s commencement of some formal process, such as a loan modification or a short sale situation.