Bitcoin Mortgage?
Authored by: @hetty-rowan
You want to buy a house?
Just imagine. You have been active in crypto for years. And you have a purpose. You want to buy a house. The first thought that comes to mind will be that you will have to sell some or all of your crypto to achieve that goal. The smart ones will make sure they don't have to sell everything anyway. Make sure they've also built a passive income stream so they don't have to start over from scratch. But what if I told you now, you no longer have to sell crypto to buy a house.
You can now use your bitcoin as collateral for a mortgage!
True, every citizen of the world can use this. But the disadvantage is that the house you want to buy must be located in the United States. And not everyone will be interested in that. Still, the possibility is interesting. And with this, a bit more mass adoption has been achieved.
The US start-up Milo introduces the world's first 'crypto mortgage'. With this mortgage, anyone around the world can buy real estate in the US with bitcoin as collateral.
Most investors actually sell their crypto to buy real estate, but according to Milo that is no longer necessary.
“Instead of selling your crypto for a down payment to qualify for a mortgage, a crypto mortgage lets you use your crypto to invest in real estate.”
Long-term loans
Currently, only customers who want to use bitcoin as collateral are eligible for Milo's mortgage loan. For the time being, the company only offers loans with a term of 30 years.
Milo shared that a number of loans have already been made as part of the early access phase, and expects the service to be available to most applicants on the waiting list in the coming months.
Regret selling bitcoin
Josip Rupena, CEO and founder of Milo, said the idea came in response to hearing countless stories of people selling their bitcoin to buy real estate, only to see it rise in value later.
“Existing ways for crypto investors to access a mortgage are creating unintended tax liabilities or worse, seeing their crypto appreciate in value.”
Buying real estate in America
Milo says the company's other mortgage solution for foreigners has already brought in millions of dollars in loans and has applicants from more than 63 countries. This means that we can buy real estate in the US remotely, we don't have to go to America or an embassy.
At the moment there are 5557 applications on the waiting list, but I could not find how much Bitcoin is needed to qualify. Although I can imagine that this depends on the amount of the desired mortgage, of course. It has also not become clear to me how Milo deals with the volatile price of Bitcoin, but I could find that you can choose to pay your mortgage monthly in fiat, OR in crypto. That choice is entirely up to you. Another interesting fact is that because of this construction, not having to sell your Bitcoin but using it as collateral, your income tax will NOT be triggered.
I seriously hope that more mortgage lenders will see opportunities in this construction, but I am also curious about how this will develop. I can imagine that people who now get their mortgage now that the market is so incredibly low are in a very good position. But someone who put their 2 Bitcoins as collateral when Bitcoin was at 65K USD might have a problem. It is not yet clear to me how Milo will deal with this. And I think the company should provide some more information about that on their website.
A CEO who is Bitcoin fan
The company is based in Miami and CEO Rupena talked about the bitcoin mortgages at the North American Bitcoin conference on January 17. Of course, Miami Mayor Francis Suarez was also in attendance. He is a big fan of crypto, and he called the bitcoin mortgage a groundbreaking achievement.
Milo raised $6 million in seed capital from investors last year.
How do you feel about this new opportunity?
What is your opinion about this expansion of possibilities that can be found with crypto? Do you also get excited about it, or are you very reserved about this, and would you still prefer to fall back on the old trusted fiat system when taking out a mortgage? 1 dollar is always 1 dollar. It does not matter whether that dollar is now increasing in value or increasing. 1 dollar is 1 dollar. Unfortunately, you do have to deal with inflation and especially for taking out a mortgage you have to meet many other conditions before you are eligible.
Personally, I think this is a very interesting development, but of course I would like to hear your opinion about it.
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Well, you have been able to get a loan from Celsius Network for ages at this point xD
yes, I guess that is true. I'm sure once the loan value gets a bit higher they will ask some more questions about what you're using the money for etc. But, going the Celsius route could also be an option. However you must consider the Liquidation Policies of Celsius vs. A Crypto Mortgage which could offer more protection from liquidation for the borrower.
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Ohh, seems like you know any more about this than I do.
I just know Celsius provide loans at 1% I think as long as you have the money in your account.
I don't know about the Liquidation Policies though, I haven't had a loan from Celsius nor do I plan on it xD
the 1% Interest rate of Celsius is great. You just need to make sure you adjust your collateral if the $USD value of $BTC drops significantly. If it drops too far, you could get liquidated. So usually for lower amount loans it's not a problem but for something like the $BTC drop that we are currently experiencing, it could be problematic.
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A loan is not the same as a mortgage in my opinion. But yes, true. There are many more places where you can get a loan with your Bitcoin as collateral.
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Ye thats true I guess. I don't really know the differences though xD
Well, a big difference is that you get a mortgage for the purchase of a house, and that it is not so free what you do with that money. In addition, you pay back a mortgage, including this one, over a period of 30 years. And normally you pay back a loan, especially those in the crypto world, much faster. Think of terms from 3 months to 2 years at most ... The amount involved is often much larger with a mortgage. There are, of course, other differences as well. But I haven't seen any contracts, so I can't tell you those either. I don't have a crypto loan, and I don't have a crypto mortgage.
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More opportunities are opening up for crypto owners and I wish this was actually "a thing" in Africa. Truth is, Selling means you get to forfeit any prospective gains that crypto might make and this sort of opportunity is like having your cake and eating it. Real estate is the real deal and we need to be resounding towards this. In my opinion, this is great irrespective of the fact that there will be more term and conditions.
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I think it's a good step forward. But there are big risks involved because of the volatility of crypto of course. What will happen if you have a mortgage with your Bitcoin as collateral and Bitcoin drops for 50% or more?
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The volatility will definitely be an issue, I still see it as an issue, but there should be ways to mitigate that.
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This is very good idea that some countries governments has been accepted BTC as a Collateral for granting loans to the individual but I don't believe wether our government can do that for individual in our country. Greetings I love this post
Thank you!
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This looks really interesting, but I'd definitely want to see a lot more detail and read the small print before committing to one.
But overall, anything which starts to distance the crypto community from legacy finance has to be a good thing, assuming it's not just legacy finance trying to move in on crypto territory.
Before this can be a real success, there needs to be a lot more detailed information. But yeah, I think it can be great if executed well!
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That is an extremely interesting development. It would be great to know more detail, as there are many ways this could be handled - for good or bad. We've been doing mortgages in CHF over PLN in my country which led to some people losing or saving fair bit of money, but the volatility of crypto is obviously unmatched.
!1UP
Thanks for the 1up. And yeah, the volatilty of crypto is probably the thing to worry about the most in this deal.
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This is indeed a great opportunity for Bitcoin holders, but still comes with a lot of questions like the few asked by you. Though I believe Rupena had set mechanisms to manage loss and policy to guide deflation in the Bitcoin value for the future. Except one is mining Bitcoin, or has saved his Bitcoin where he makes interest weekly or monthly, else selling the Bitcoin and paying full is better, the interest for the monthly or yearly payment was not discussed and what happens when the market becomes bearish and also managing interest at the same time?
I'm not too sure about this all. Yes, it can be a great opportunity, but I guess it's like fiat. Never loan on top of your abilities. If you have 4 Bitcoin, never take out a mortgage with 4 Bitcoin as your collateral, or you must be able to pay the mortgage in fiat any time.
I was searching for some more information after I wrote this blog, and actually found that if Bitcoin drops, you need to add more Bitcoin as a collateral or add fiat. So yeah, that's really something to be aware off before you take out a mortgage with your Bitcoin.
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I am wondering 2 things:
is there a pre-payment penalty? You can look to refinance as you gain equity both in market value and the lowered principle balance over time. This can be effective during an interest rate decrease in mortgages. You can then have a lower interest rate and get access to your Bitcoin and begin earning yield which could further be applies to your principle balance.
How would they handle a swing like a 20% drop or more in the value of Bitcoin? Would you need to over collateralize or add more if the Lone to Value ratios become too offset?
this will only benefit crypto in the future as these types of loans evolve and become more mainstream!
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I don't have all the information on this, but I found later after posting the blog that if Bitcoin drops, you need to add more collateral. So that is something to keep in mind before you start.
But I assume that this company will go through the rules and strategies thoroughly before they decide on your eligibility for a mortgage from them.
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Definitely something to pay attention to in the future. As others have said, you definitely need to read the fine print. But using Bitcoin as collateral rather than having to pay capital gains by selling it could literally save you tens of thousands of dollars in taxes, not to mention the fact that you still "own" your Bitcoin so if it keeps rising you benefit from that as well.
I would say that this is something you can do as long as you're capable of making the payments in fiat and aren't relying on the price of Bitcoin. I will definitely keep this in mind (if I ever get enough Bitcoin to matter--lol).
Nice write-up!
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Lol ... I don't have to think about it at all, but I found it some interesting development. Although, I do think there are several risks to keep in mind before taking out a mortgage this way.
Bitcoin's volatility is a big dealbreaker.
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Would someone not spare a minute and think of the poor banks having to deal with this upstart.
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Well, I think there's at least 95% of all people that won't take out a mortgage with Bitcoin as a collateral. Not with the volatility that Bitcoin is experiencing.
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Do they say they're the first because they're purely branded as using Bitcoin for a mortgage?
There are plenty of centralised lending services that currently allow you to use Bitcoin as collateral and take out a loan for other things.
What I'm most excited about however, is the DeFi lending space.
No questions asked, no paperwork, no regulation.
Just math.
The only thing that matters :)
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I guess so. Yes, there are plenty of places to get a loan, but not with a 30 years payback term. And that's the case with this mortgage
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This is an excellent opportunity, but with the crypto market so volatile how will they base collateral on the token. 1 Day it is worth 50K a few months later it is worth 38K which is an insane fluctuation to base collateral for a real estate loan.
I do hope it works well.