Mortgage Equity Withdrawal (MEW) is a form of loan sold by banks to homeowners or qualifying mortgage holders, enabling the property holder to get cash from the supposed or actual accrued equity (assessed value less liabilities) in a property. These arrangements were popular in the US and Europe in the 00’s as some people who had paid off their homes decided to re-mortgage them, and those with existing mortgages decided to extend them using the market-appraised value increase as collateral. As the market has fallen, those who over extended themselves are now finding that their mortgage is “upside down”: the cash and value spike was temporary, but the debt obligation is on-going.
For the last ten years, Mexico experienced a boom in house sales that now, like elsewhere, has come off the boil. While sales have slowed, the housing market in Mexico is not suffering the same fate as, for example, Spain where a combination of cheap money, Mortgage Equity Withdrawal schemes, and massive over-construction twisted normal market principles into unrecognizable forms.
Some eyebrows were raised recently when an advertorial article in one of the country’s principal newspapers, announced that a bank was now offering home owners in Mexico the opportunity to take cash out of their homes through a Mortgage Equity Withdrawal arrangement. The scheme highlighted in the article is being offered by BBVA—one of Spain’s biggest banks.
Mexicans were never offered the remarkably low rates of interest offered on home loans in the US, Canada, Europe, et al. Today interest rates on mortgages are around 8-10% per year, some of the lowest rates Mexican mortgage holders have ever been offered. Borrowers must put down at least a 15% deposit, and have to pay significant account aperture costs (“arrangement fees”). These restrictions, along with other prerequisites, limit the number of customers qualifying for the long term loans.
Whether Mexican home owners (and qualifying mortgage holders) decide to ‘convert their homes into cash’ as some Americans and Europeans did, remains to be seen. Easy money can be tempting, especially in harder economic climates—or to fund a vacation, or a new car. Older property owners with no mortgage and a need for cash might also be tempted to tap in to these MEW loan schemes.
Credit has been expanding in Mexico over the last decade, but mostly in the form of credit cards, store cards, and car finance arrangements.
See Also: Banks and Banking in Mexico
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