What is Mortgage Equity Withdrawal (MEW) and How Does It Work?
Definition & Meaning
Mortgage equity withdrawal (MEW) refers to the process of extracting equity from a home and converting it into cash for various expenses. This is typically achieved by taking out a loan based on the current market value of the property. While MEW allows homeowners to access funds, it also increases their liabilities, which can reduce the real value of their property. If the market value of the home rises in line with the equity withdrawn, the real value remains stable. However, if property values decline and fall below the total liabilities, homeowners may face a negative equity situation.
Legal Use & context
Mortgage equity withdrawal is relevant in several legal contexts, particularly in real estate and financial law. It may involve various legal documents and agreements, such as mortgage contracts and loan applications. Homeowners considering MEW should be aware of the implications it may have on their financial situation and property rights. Users can manage some aspects of this process using legal templates from US Legal Forms, which are drafted by qualified attorneys.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A homeowner with a property valued at $300,000 and an outstanding mortgage of $200,000 may withdraw $50,000 in equity to pay for home renovations. If the property value increases to $350,000, their equity position remains positive.
Example 2: A homeowner withdraws $100,000 in equity when their home is valued at $400,000. If the market declines, and the home is later valued at $350,000, the homeowner may face negative equity, as their liabilities exceed the property's value. (hypothetical example)