Securing a mortgage loan for your dream home can sometimes seem like a herculean task. This could be more true for people who hold a large portion of their wealth in cryptocurrency. People aren’t generally interested in exchanging their homes for your digital assets, not even as a down payment.
However, some companies will accept your crypto assets as collateral for your home loan. This could be great news if you have an extensive crypto portfolio, but bear in mind this development is still in its early stages and has some limitations.
What Is a Crypto Mortgage?
A crypto mortgage is similar to its traditional counterpart; the main difference lies in the means of payment. In the traditional mortgage arrangement, a lender agrees to loan you money to purchase a house, and you pay interest on the amount borrowed for the duration of the loan. In a crypto mortgage, your digital assets are used as collateral, and lenders base their loan offers on your digital asset portfolio size.
How Does a Crypto Mortgage Work?
Crypto mortgages carry less baggage than the rigorous traditional mortgage system, which can leave you exhausted before you find a good fit. Unlike the traditional system, which involves a thorough check on credit scores, hours of searching for suitable rates, and tons of paperwork, crypto mortgage lenders shift their focus from your credit score to the size of your portfolio. If your assets are significant, your loans will be enormous.
The average crypto mortgage arrangement works as follows:
- Select a suitable crypto mortgage company.
- Complete their registration and application processes.
- Communicate how much you would like to use as collateral.
- Conclude a payment plan and agree on an interest rate with your borrower.
- Pay for your dream home.
3 Companies That Offer Crypto Mortgages
Crypto mortgages are relatively new, so few people offer them. However, these are some of the most credible crypto mortgage lenders today.
1. Milo
Milo Mortgage provides U.S. crypto-backed mortgages with a minimum of $200,000 and a maximum of $5,000,00. The company’s interest rate starts from 8.95%, and they accept payments in Bitcoin, ETH, and USDC.
The major advantages of using Milo Mortgage are that its application process is easy and accessible to foreign citizens. However, they accept a limited number of crypto assets and only work for U.S. properties. Also, if you decide to sell the property, you must repay your loan in full.
2. Ledn
Ledn is a popular platform for investing in cryptocurrencies. And if you use Ledn Private Wealth, you may have access to a bitcoin-backed mortgage. The service is only available in a few locations, including Ontario, Canada, with varying interest rates.
3. USDC.Homes
USDC Homes is a decentralized finance (DeFi) marketplace where you can derive crypto loans to buy a home. Liquidity providers deposit funds into the USDC Homes pool to enable you to purchase a non-fungible token (NFT) tokenized real-world property with as little as a 20% down payment. When applying, you will have to pay a one-time underwriter fee. The properties available for purchase are displayed on the USDC Homes page.
7 Advantages and Disadvantages of Crypto Mortgages
If you find a lender that accepts crypto as payment, here are some of the main pros and cons.
1. Accessibility
Crypto mortgages make it easier for people to assess real estate investments. With a well-balanced crypto portfolio, less focus is placed on your income or payment history. Instead, the emphasis is placed on the size of your asset portfolio.
2. Tax Advantages
Another significant benefit of using your crypto as collateral for your mortgage loan is reducing your tax liability. This is because you are not required to withdraw your cryptocurrency as cash; instead, you can continue to hold them as they are.
3. Zero Credit Checks
One of the reasons you may struggle to secure a suitable mortgage loan is because of your poor credit score. In most cases, crypto mortgage facilities skip checking your credit score since they focus on your crypto asset portfolio size. Another benefit is that it may speed up the process and put you in a better position to claim the best offers.
4. Crypto Is Volatile
We can’t help but recognize the tremendous growth the crypto ecosystem has undergone over the years. However, the market remains volatile. One minute you can be in massive profit, and the next minute everything is gone.
Once the value of your crypto begins to fall, it signals a problem. The fall can sometimes be so bad you are forced to liquidate the assets for cash. Lenders have different parameters for determining when it becomes necessary to liquidate your crypto assets. These parameters may include the asset’s value falling below a certain level, for example, below 70% of the property or loan amount. Even the asset’s value fluctuating too often within a period, say three times in one month, could trigger your lender to request you to liquidate your cryptocurrency.
5. Liquidation Risk
Earlier, we mentioned that you might not have to cash out your crypto assets to secure a mortgage loan, but this isn’t always true. Some companies are skeptical of digital currencies and may force you to liquidate your assets before granting you the loan.
They may also force you to do this when the value of your assets drops drastically, as is common with cryptocurrencies. You could use a conservative amount for your loans so that any downtime in the market does not leave you stranded.
6. Loss of Control
When you collateralize your assets, you lose access to them until they are released to you. So whenever there is an increase in the value of your assets, you cannot realize it.
7. High-Interest Rates
Traditional mortgage interest rates fall within 5%-7% depending on the length of the loan tenure. While mortgage facilities that accept crypto try to keep their rates within this range, they tend to charge a higher interest rate. This is because the size of your portfolio determines the loan offer you will get; this causes the rates on crypto loans to be as high as 12%.
So, Who Should Get a Crypto Mortgage?
Crypto-backed mortgages are great for people who have a majority of their wealth in crypto. It positions you for better loan offers if the size of your portfolio is significant, and there are fewer limitations since your credit score and income may not be considered.
However, it also has its limitations, the foremost being that it is not yet available to everybody. You also risk losing your assets and being forced to liquidate them because of how volatile the market is. You can limit how much of your portfolio you use as collateral to avoid losing more than you can manage.