The spike in the value of crypto assets has created a lot of fortune for many people. Most of these people are looking for different ways to invest their newfound wealth. Rather than spend their money on trivial things, they are interested in tying it up in real-world assets.
Many real estate firms are willing to accept crypto payments, but most investors are hesitant to let go of their digital assets. However, crypto mortgages offer them a great way to invest the value of their cryptocurrency portfolio. But what are these outstanding mortgages?
How do they work? You’ll find the answers to these questions and more in this piece.
In simple terms, crypto mortgages are the same as regular mortgages. The distinctive feature between both types of mortgages is the nature of the collateral involved. Crypto mortgages require a portfolio of digital asset holdings.
In this type of agreement, a person will lend money for a portion of their digital asset holdings. The digital assets will be restored to their owner after the loan has been paid completely.
Crypto mortgages are relatively simple. Whenever you express the desire to take this type of mortgage, the mortgage company will check your portfolio to determine the current worth of your holdings.
This aspect is crucial to the success of entire mortgage. The mortgage company will only agree to the terms of your mortgage when they
realize that you have enough liquidity or digital assets to offset the loan.
Next, the lender will determine the loan terms - including the total value of the loan and the interest rate. Before the loan is processed, you will be asked to deposit your loan collateral (digital assets).
Often, the amount of the collateral you deposit will be equal to the total the loan value.
When all the details have been finalized and agreed on, you may begin to pay back the loan in monthly installments. After an agreement has been reached, you will become the homeowner. But all title rights will only be transferred after the whole deal has been completed.
You need to note that the interest rate charged by the mortgage company will vary periodically, depending on the value of the cryptocurrency compared to the total amount of money loaned.
The major criteria for getting a crypto mortgage has enough digital assets in your portfolio to cover the full cost. However, they will still go ahead to check through your credit history.
When paying back the loan, you may decide to make payments in cryptocurrency or fiat money. After completing the mortgage
payment, your crypto assets will be restored fully to your possession.
As competition grows and more people are exposed to the benefits of crypto mortgages, the range of digital assets accepted for this type of transaction will broaden.
The major benefit of crypto mortgages is that you don’t have to sell your digital assets to use them as collateral. Your digital assets will remain intact till the end of the loan period.
You won’t be subject to any taxes by refusing to sell your digital assets. It will also ensure that you can benefit from future increases in the value of your digital assets.
Another benefit of this type of mortgage is that the lender has another form of recourse instead of a foreclosure. Let’s say you are unable to make some payments, the real estate company will not request for foreclosure of your property, but you may only lose some of your digital assets.
While crypto mortgages serve as an effective means to help you secure a loan for your new home, they don’t come without their disadvantages. The major risk of crypto mortgages is associated with the volatility of cryptocurrencies.
Digital assets, such as cryptocurrencies have high volatility. This means their prices fluctuate regularly and by wide margins.
If you use your Bitcoin as collateral for a mortgage company and the value of your holdings depreciates heavily, you may have to pay more money to compensate for the reduction in value.
This scenario is referred to as Margin Call. Failure to fulfill this margin call may lead to further actions by the mortgage company.
Crypto mortgages are a relatively new phenomenon. As a result, you won't find many service providers that currently offer this service. However, there's an increasing number of service providers that let people buy homes with their digital assets.
● Milo is a lender based in Florida that gained widespread popularity as one of the first service providers to offer crypto mortgages. This mortgage firm currently specializes in real estate mortgages and offers about $5 million for a period of 30 years.
They charge low-interest rates of about 5.95% - 6.95%. Milo has gained popularity because it doesn't require down payments for loans. This company usually receives collateral in Bitcoin, Ethereum, and stable coins.
● USDC.Homes is a service provider that offers crypto-based mortgage to prospective homeowners in Texas. This lender accepts USDC, Ether, Bitcoin, and other cryptocurrency assets as collateral. They offer loans of about $5 million at an interest rate between 5.5-7.5% annually.
● Figure is a lender based in North-Carolina offering prospective homeowners mortgage loans of about $20 million. It has plans to accept Bitcoin and Ethereum as collateral for home loans. Their loan packages can be extended over 30 years at an annual rate of 6%.
● Ledn currently offers Bitcoin loans in Canada and plans to extend its service to the United States. Interested homeowners can register to be on a waitlist for crypto-backed mortgage loans.
And that's all on crypto mortgages. These outstanding mortgages ensure that people can secure loans with their digital assets. Without any doubt, interest in these types of mortgages is on the rise.
While many things are still unclear about the effectiveness of crypto mortgages, there are clear signs that many lenders have begun to take active steps to offer this type of service to homeowners.