In the past few years, there have been players in the mortgage lending market who pushed the conversation around crypto currency’s role in borrowing. Since some statistics show that more than 20% of adults in America own bitcoins, the appearance of the demand for crypto mortgages should not surprise us.
Milo and Figure Technologies are some of the first companies in the US to start allowing their borrowers to purchase mortgages against their bitcoins or ethers. Figure Technologies’ waiting list is open for the people interested in their 30-years-fixed mortgages. Milo’s waiting list counted more than 7,000 people after they announced the service.
Right now the process of borrowing starts with a person who wants to buy a property but does not have $300,000 in cash. He or she needs to collect at least 20% for the downpayment and find a lender.
That lender will evaluate the financial stability of the potential borrower, and check whether they are a risk to the lender. In many cases, traditional lenders regarded crypto assets as “risky” and denied the borrowers who collected a significant amount of bitcoins or other digital currencies.
Crypto lenders are paving the way for the blockchain economy, by factoring out a traditional risk assessment and enabling people to keep collecting crypto. One of the biggest perks of this kind of borrowing is the fact that a purchaser does not have to sell his digital recourses and pay taxes on the sold amount. A borrower is essentially leveraging their crypto wealth to invest in real estate, and as soon as they pay back what they borrowed, they get the leveraged amount.
The blockchain lenders are only interested in borrowers’ digital wealth and they give 100% of the value, so there is no need for a downpayment. They allow monthly payments both in dollars and crypto, with an interest rate moving from 5% to 8%, depending on the value of the collateral. Unlike the company Milo, which has already started issuing loans up to $5 million, Figure Technologies just announced the service will start at some point in April, and set $20 million as the maximum amount.
The interest rate will be adjusted once a year, according to bitcoin’s price change. Milo’s representative said in an interview that borrowers may be asked to provide more bitcoins for their collateral if the price of Bitcoin increases at the one-year mark.
This could be considered a downside, together with the fact that you need to collect the exact value of the wanted property if you plan to take out a crypto mortgage loan. These two companies are not the only players in the crypto mortgage game - even some traditional lenders tried to give this method a chance.
Last year, a Michigan-based lender started a pilot program that should allow bitcoin payments to their borrowers. The program shut down after just two months due to a lack of regulation and incremental costs.
Although there are many crypto holders, there is no way of knowing how many people have collected a substantial amount in any digital currency to actually afford real estate. Additionally, there are platforms that help house-hunters with collected digital wealth buy a property without the need to transfer it into fiat - government-issued currency, i.e. dollars. It is apparent that the market is slowly but surely adjusting to the blockchain economy.
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