Why you shouldn’t get your mortgage in bitcoin
Buyers looking for a home in the US can now apply for a crypto mortgage but be sure to read the fine print.
The financial-tech company Milo has launched what it calls “the world’s very first” crypto mortgage. The Florida startup says homebuyers worldwide can now use its platform to finance the purchase of a US home with bitcoin.
But there’s a big catch: Homebuyers don’t have full control of their asset. If they wish to sell their property, they’ll have to pay off their loan in full in US dollars to Milo before the company releases a lien and transfers the bitcoin back. Plus, to qualify for the mortgage, a buyer must own a value of bitcoin equal to the total sale price of the home.
Milo says by “pledging” crypto, borrowers retain their bitcoin for the duration of the loan, allowing them to continue accruing value if their real-estate and crypto investments appreciate. “It’s a way for a consumer to continue holding on to their bitcoin while creating wealth as it appreciates,” Josop Reupena, Milo’s CEO and founder, told Insider. “But at the same time, giving them the benefit of buying real estate – historically, it’s really been a one-or-the-other type of scenario.”
With mortgage rates at pre-pandemic highs, housing affordability tanking, and available housing getting snatched up with all-cash offers, a crypto mortgage might be a tempting opportunity to a certain set of prospective buyers. After all, the value of bitcoin has climbed 9,000,000% over the past decade. But it’s still a highly risky investment.
Erin Sykes the chief economist of Nest Seekers International, a residential and commercial brokerage firm said this lending model may not benefit the typical borrower.
“Crypto investors tend to be high-risk and high-reward people who are relatively resilient to different fluctuations in the market,” Sykes told Insider. “So do I think it’s a good idea for an average person absolutely not.”
How it works
Someone who has crypto wealth equal to the sale price of their desired home can get from Milo a 30-year fixed-rate US crypto mortgage. It’s a loan that uses bitcoin as collateral in the same way a homebuyer seeking a traditional mortgage might offer investment accounts, savings, or other property.
Milo determines whether a borrower is qualified using their crypto wealth instead of a FICO score or income on a tax return. Crypto borrowers do not need a cash down payment at the time of purchase. Once approved, Milo finances 100% of the purchase and stores the crypto with an unidentified third party.
From there, Milo acts much like a traditional lender, earning money on interest and closing costs. If a homeowner goes into foreclosure, Milo sells the property to recoup the amount owed by the borrower. If a homeowner wants to sell their real-estate asset, they must pay Milo the full loan amount in US dollars.
That’s where it gets tricky.
Why a crypto mortgage isn’t for the typical borrower
While Milo says it’s the first lender using bitcoin as collateral for a mortgage, the concept of leveraging against crypto is not new. A handful of lenders including BlockFi, Avalanche, and Nexo also allow borrowers to take loans or earn a return with crypto. Milo is just one of the first companies to apply the model to mortgage lending.
Traditionally, those who borrow against their crypto have to continuously refinance their loans, Reupena said. He said Milo’s model eliminated this need, which offers borrowers more stability. “We’re giving them time to really build wealth through real estate,” he said.
But it’s not for everyone. Sykes said a crypto mortgage was better-suited for an investor or someone who doesn’t have many ways to spend newly amassed crypto wealth.
“This would be for someone who has a high risk tolerance and believes in the further appreciation of crypto and does not want to sell yet,” Sykes said, adding that could make “using it as collateral on a loan more attractive.”
Nevertheless, bitcoin’s unstable value makes crypto mortgages a risky option for typical homebuyers.
For example, if the value of bitcoin fell after the home purchase, the borrower’s interest rate on their mortgage would trend higher.
“I think individuals that can access mortgages because they have the income to do so and fit the traditional criteria set should definitely get a conventional mortgage,” Reupena said.
Milo declined to say how many crypto borrowers it had, but Reupena told Insider it had processed more than $400 million in loans and had a 7,000-person wait list.
