You Can Now Get A Mortgage With Crypto – But Should You?
If you haven’t heard the news, a company called Milo now offers the world’s first crypto mortgage.
It’s a 30-year-old product that lets you leverage your cryptocurrency holdings (only Bitcoin at the moment) to buy a house. You then repay the loan monthly, plus interest, in USD, Bitcoin, or Stablecoin.
During the term of the loan, Milo keeps your crypto in a secure place, and once the balance is fully paid off, it is released and returned to you.
For crypto investors, this can certainly be a tempting premise – especially when you learn that there is also no down payment, tax return or credit check. But should you dive in and get on the company’s long “waiting list”? Here’s what to consider first.
What if your crypto value drops?
The biggest risk with these mortgages is the fluctuation in crypto value. Currently, the company only takes Bitcoin, which has seen its fair share of declines over the past few years. In fact, Bitcoin’s value has fallen over 20% in the past six months alone.
When the value of your crypto-collateral drops, it can trigger several things: First, it can impact the interest rate on your loan. The lower the value, the higher your loan-to-value ratio and the higher your rate. Milo’s loans are adjusted annually based on the value of the crypto.
It could also trigger a margin call if your Bitcoin value drops below 65% of your loan amount (meaning you will need to contribute more coins), and if it drops below 30% the company will liquidate your assets and store the balance in USD. in place. Obviously, if you are counting on this crypto as a long-term investment, the latter is something you will want to avoid.
Remember the real estate crash?
Lax mortgage lending practices were a major contributor to the housing crisis of 2007-2008. Lenders gave mortgages to underqualified homebuyers, and when house prices fell, many flipped their loans, owing more than they were worth.
While I’m not saying these crypto loans will do the same, the removal of the credit check and down payment components is certainly a risky reminder at first, and buyers could find themselves in a similar position if home prices are falling.
If these loans pick up steam (so far only one lender is offering them, but a few others seem to have products on the way), that could spell bigger trouble for the loans as a whole. But that’s a story for another day.
Should you leverage your crypto?
Crypto-backed mortgages aren’t all bad, and there are clear benefits for the right borrower. You don’t need big credit or tax returns to qualify, there’s no down payment, and the process is also faster than traditional loans.
If you don’t qualify for a conventional or FHA mortgage (at least an affordable mortgage), this could be a good option – as long as you are aware of the risks and are confident in the future value of your crypto. If you can get a traditional mortgage, though? You’re probably better off doing that.