Which of the following best describes the situation of being 'underwater' on a mortgage?

Being 'underwater' on a mortgage refers to a situation where the outstanding balance of a mortgage loan is greater than the current market value of the property. This typically occurs when property values decrease, resulting in homeowners owing more on their mortgage than their home is worth. For example, if a homeowner purchased a house for $300,000 and due to market conditions the value of the home has dropped to $250,000, the homeowner is considered underwater because they still owe $290,000 on the mortgage. This situation can lead to financial difficulties, including challenges in selling the home or refinancing the mortgage. Hence, this definition aligns precisely with the correct answer, making it the best description of being 'underwater' on a mortgage.