Can Linking cause “negative equity”?

September 28, 2017

Negative equity arises when the value of the mortgaged property is less than the mortgage balance.  Of itself, Linking cannot cause negative equity because Linking is not the same as borrowing additional funds under the mortgage and so the mortgage balance does not increase merely because a Borrower puts on a Link.

However, Linking to an underperforming index will mean that more of each mortgage payment is attributed to interest charges than would otherwise be the case.  So, a poorly performing Link might result in the Index Mortgage loan balance being greater than under an otherwise equivalent non-indexed mortgage – but that is not the same as negative equity.