What exactly is Mortgage Equity Withdrawal (MEW)?
I have just be reading about the increasing numbers of budding buy-to-let empires contained by the papers. I came across the phrase Mortgage Equity Withdrawal and wondered what exactly it meant, contained by particular in relation to the buidling of a buy-to-let portfolio. I own a basic understanding that it occur when the value of a property rises and hence there is a gain for the owner between the price salaried and the current valuation. But how is then converted into actual cash? And how can it be used as a deposit on more mortgages? Do the bank simply accept the deposit on thesecond mortgage as the merit in bricks and mortar or is there some process by which they call for the cash and if so how is this done by the homeowner? Does MEW have anythnig to do next to re-mortgaging, and if so, what exactly? Sorry if this is a really basic Q but i would just similar to a really step by step guide to the above questions as i was for a while confused! Help would be much appreciated :)
Steve
Answers:
Basically you're right, the value of your house increases, whilst at the same time the helpfulness of your debt (mortgage) decreases over time as you pay it sour.
So, for example, you start with a lb50000 house and a lb50000 loan. After 10 years you have salaried off lb10000 and the value of your house have risen to lb60000. This means that you have an equity crevice of lb20000 (the difference between the amount of your loan and the value of your house, in this luggage lb60000 - lb40000).
Lenders will allow you, in most cases, to borrow against this value, that's where on earth the cold hard cash comes from. Basically the lender accept that you have a lb40000 debt still outstanding but also accepts that you 'own' a lb20000 share of your house. They will lend against your share.
When you filch a mortgage the bank/company secures the debt by thinking 'right, if the borrower can't pay the loan stern, we'll take the house and sell it to grasp the money back - that's called a repossession).
Because of this, when you still hold the first loan (your original mortgage) the bank/company has first dibs on the house, but with the sole purpose to the value of your outstanding debt to them. After that the second company, that you release your equity through, has second dibs and will nick the remaining lb20000, or however much you borrowed. This is called a 'notice of interest'. The banks/lending institutions sort this out themselves and all notify respectively other when equity/lending had been made against a home.
Please also be aware that I own not provided you with any advice contained by this reply, I have simply presented the facts as they stand, as it would be illegal for me to recommend you to act in any bearing Source(s): I'm a financial advisor
A noise a cat might make. Meww...
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Steve
Answers:
Basically you're right, the value of your house increases, whilst at the same time the helpfulness of your debt (mortgage) decreases over time as you pay it sour.
So, for example, you start with a lb50000 house and a lb50000 loan. After 10 years you have salaried off lb10000 and the value of your house have risen to lb60000. This means that you have an equity crevice of lb20000 (the difference between the amount of your loan and the value of your house, in this luggage lb60000 - lb40000).
Lenders will allow you, in most cases, to borrow against this value, that's where on earth the cold hard cash comes from. Basically the lender accept that you have a lb40000 debt still outstanding but also accepts that you 'own' a lb20000 share of your house. They will lend against your share.
When you filch a mortgage the bank/company secures the debt by thinking 'right, if the borrower can't pay the loan stern, we'll take the house and sell it to grasp the money back - that's called a repossession).
Because of this, when you still hold the first loan (your original mortgage) the bank/company has first dibs on the house, but with the sole purpose to the value of your outstanding debt to them. After that the second company, that you release your equity through, has second dibs and will nick the remaining lb20000, or however much you borrowed. This is called a 'notice of interest'. The banks/lending institutions sort this out themselves and all notify respectively other when equity/lending had been made against a home.
Please also be aware that I own not provided you with any advice contained by this reply, I have simply presented the facts as they stand, as it would be illegal for me to recommend you to act in any bearing Source(s): I'm a financial advisor
A noise a cat might make. Meww...
Related Questions: