In economics, mortgage equity withdrawal (MEW) is the decision of consumers to borrow money against the real value of their houses. The real value is the current value of the property less any accumulated liabilities (mortgages, loans, etc.) Some authors also use equity extraction and include net payments received at time of house sale. In this case the traditional usage of equity extraction is the purchase of a new house.
The rate of MEW has been linked to Marginal propensity to consume (MPC), as measured by Personal Consumption Expenditure (PCE). In the United States, during the dramatic rise in house prices MEW funded PCE 1.1 to 1.7% from 1991 to 2000, and almost 3% from 2000 to 2005 and was responsible for more than 75% of GDP growth from 2003 to 2006. Research indicates that the less financially savvy are 3–5 percentage points more likely to engage in this type of MEW relative to those who answered financial literacy questions correctly.
Famous quotes containing the words mortgage, equity and/or withdrawal:
“The mortgage is still in our name but, increasingly, the house is theirs. One diaper, one vote.”
—Fred G. Gosman (20th century)
“If equity and human natural reason were allowed there would be no law, there would be no lawyers.”
—Christina Stead (1902–1983)
“A bizarre sensation pervades a relationship of pretense. No truth seems true. A simple morning’s greeting and response appear loaded with innuendo and fraught with implications.... Each nicety becomes more sterile and each withdrawal more permanent.”
—Maya Angelou (b. 1928)