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What is a Mortgage Equity Withdrawal?
Mortgage Equity Withdrawals (MEWs) may effectively be a withdrawal when viewed in a balance sheet, but they are actually loans that use the equity in a home as the collateral. These are also known as home equity loans.
A full liquidation of equity through such a loan is a reverse mortgage. When a homeowner has paid off their home, they have a lot of equity and collateral to work with if they would like to get some liquidity (money) out of a hard asset.
Much the time when someone wants to use their equity to give them some liquidity, they do so when they still have more mortgage payments outstanding, but they are comfortable risking some of their equity, or their entire home, in order to have use of a lump sum of money at that time.
People might do this for all sorts of reasons. These are sometimes called home equity loans or a home equity line of credit (HELOC). The term “withdrawal” here is really a misnomer because you can’t pull money out of the walls of a house, in most cases, but you are pulling cash out of the house in a figurative, if indirect, way.
If a person gives up their home equity in exchange for cash flow, it’s known as a reverse mortgage.
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