We live in a world of digital currencies. People are no stranger to Bitcoin, Ethereum, and USD Coin. With over 300 million crypto users worldwide, crypto has become mainstream and crypto ownership is rising. The digital currency has impacted various industries and the mortgage industry is no exception.
Crypto mortgages are one of the hottest mortgage tech trends these days. Almost 11.6% of the first-time home buyers sold cryptocurrency to make a down payment of the property in 2021, up from 8.8% in 2020. Many experts believe that blockchain could be a driving force in transforming the real estate industry. In fact, many experts at the 2022 Realtors Legislative Meeting, consider metaverse and crypto mortgages to be the leading technology making a significant impact on the future of the real estate.
What Are Crypto Mortgages?
Crypto mortgages are similar to the traditional mortgages that we know. The only difference is that borrowers use cryptocurrencies as the collateral for a loan. They work as digital-asset holdings. If a borrower plans to apply for a loan by using digital currencies as the collateral, the lender assesses their crypto holdings to analyze how much they can borrow.
These innovative mortgages are attracting those who hold a lot of wealth in cryptocurrencies. Previously, people who had a high volume of cryptocurrencies, like Bitcoin and Ethereum, with them faced difficulty in buying a home with the digital currency. The reason is that they had to pay a hefty tax for converting their cryptocurrency to cash. However, with crypto mortgages, they could easily purchase a property without having to convert their digital assets.
The Buzz Around Crypto Mortgages
Crypto mortgages started doing the rounds in the real estate industry after some bigwigs began accepting digital currencies as collateral. Milo, a fintech company, and Figure, a company specializing in mortgage refinance, were the early birds of the crypto mortgage market. Milo originated the first crypto home loan in March. It provided a 30-year fixed-rate mortgage in bitcoin to the borrower to buy a duplex in Miami.
The amount of mortgage offered in cryptocurrency by Milo and Figure were $5 million and $20 million respectively, for 30-years terms, like the traditional loans. They both accept Bitcoin and Ethereum (Milo also accepts Stablecoins).
Apart from these early adopters, some more big players in the real estate market are gradually entering the crypto mortgage space, USDC.Homes in the US and Ledn Inc. in Canada to name a few.
Are Crypto Mortgages Realistic?
There is always some kind of speculation when a new concept is introduced to the masses. Similar speculation that has started a debate is whether crypto mortgages are realistic or not. While many believe that you should not get a mortgage using crypto as collateral, others are of the opinion that crypto mortgages are the future of the real estate.
Many find crypto mortgages to be the golden opportunity for buying a home amid rising mortgage rates and the housing affordability crisis. With Bitcoin’s price breaking above $31,000 at the end of May, it has again become investors’ favorite. Also, one cannot deny the fact that Bitcoin’s value has skyrocketed 9,000,000% over the past decade. So, those who invest early in crypto and held it for a long time might have created huge wealth out of it. Moreover, crypto mortgages are the perfect place for them to benefit from their digital wealth without cashing it out.
On the other hand, those who can’t make their bet on crypto mortgages back their statements with the fact that when you buy a home using digital assets, you don’t have control over the property. If you want to sell your property, you need to pay off the entire loan amount in US dollars to the lending company before it releases a lien and returns the cryptocurrency to you. Also, the borrower must have cryptocurrencies equal to the selling price of the home to qualify for the mortgage.
Although it’s true that using digital assets as collateral for the mortgage is now a reality, it has its fair share of risks. Free-falling crypto value and volatile market can destabilize the situation and discourage lenders from embracing the digital currency while negatively impacting the borrower’s crypto wealth.
Milo securing $17M in financing to expand operations makes it evident that crypto mortgages will increase in popularity, though slow, it will. And, steps must be taken to minimize the risks and maximize the profits from crypto. Lending institutions must also be prepared to overcome the challenges of crypto mortgages to future-proof their businesses. They must break out of silos and transform their mortgage system according to the new crypto environment.
The future of crypto mortgages is bright and can be a profitable venture for lenders if they make changes to their current mortgage system to support digital currency.