Mortgage Equity Withdrawal (MEW): What it is, Why it Matters

Skylar Clarine is a fact-checker and expert in personal finance with experience in veterinary technology and film studies.

What Is a Mortgage Equity Withdrawal (MEW)?

A mortgage equity withdrawal (MEW) is the removal of equity from a home through a loan against its market value. This reduces the real value of the property.

Key Takeaways

• A mortgage equity withdrawal (MEW) refers to any loan that allows homeowners to access the cash value of their home.
• Home equity loans, second mortgages, and home equity lines of credit (HELOCs) are examples of MEWs.
• The value of home equity tends to rise with increasing home prices.

Understanding Mortgage Equity Withdrawals (MEWs)

Mortgage equity withdrawals are common during economic booms and rising home prices. If the value of a property increases in line with the withdrawals, the real value of the home remains constant. However, issues arise when home prices fall below the outstanding liabilities, creating a negative real value of the property to the owner, as seen in the 2007-2009 financial crisis.

For example, if someone has a $95,000 mortgage balance on a home with a market value of $140,000, they may be eligible for an MEW of up to $45,000, which is the market value minus the mortgage balance, resulting in $45,000 in equity. If they obtain an MEW of $10,000, their equity reduces from $45,000 to $35,000.

Why Mortgage Equity Withdrawal Matters

Mortgage equity withdrawals use the value of a mortgaged property as collateral. When a property has positive equity, it can be used as collateral for a new MEW.

Borrowing against home equity in the form of an MEW allows homeowners to access cash from what is typically considered an illiquid asset. However, MEWs come with risk, as the mortgaged property’s value could decline after equity is withdrawn. This could result in the mortgage balance exceeding the property’s market value.

Home Equity

Home equity is the value of a homeowner’s interest in their property, which fluctuates over time with mortgage payments and market forces. It can be obtained through a down payment or increased through property value appreciation.

Home equity loans (also known as second mortgages) and home equity lines of credit (HELOCs) are common ways to tap into home equity.