Key Takeaways
- Some crypto loan platforms let you get a home mortgage by putting up your crypto assets as collateral.
- The interest rates of crypto mortgage lenders are competitive with that of traditional lenders.
- Securing a crypto mortgage enables you to avoid cashing in your crypto holdings early and missing out on potential gains.
- Crypto mortgages are secured by both your crypto and your home as collateral. Because the loan ends up overcollateralized, you will not need to make any down payment when using a crypto mortgage.
Crypto Mortgage Lenders
The recent growth wave in the crypto market has spawned a handful of companies offering crypto-backed mortgages. The most popular include Milo, Figure, and USDC.homes.
4.4Milo was founded in 2019 to provide mortgages to global crypto consumers. The company provides mortgages backed by crypto assets– a minimum of $200,000 and a maximum of $5,000,000.
Pros
- Fast closing time
- No down payment
- Easy application process
Cons
- Few acceptable crypto assets.
- For U.S. properties only.
- Must pay off the loan in full if you decide to sell the mortgaged property.
- You’re a foreign citizen who wants to buy a U.S. property– Milo doesn’t require a social security number to approve mortgages.
- Milo lets you refinance mortgages with cryptocurrency.
- You can secure a mortgage relatively quickly if eligible.
You need to meet Milo’s eligibility terms in order to secure a loan, which include:
- At least $200,000 of crypto assets when pledging a mix of BTC, ETH, and USDC, or at least $80,000 when posting only USDC as collateral.
- A valid government-issued passport or driver's license for identification.
4.3Figure is a well-known company that provides home equity lines of credit (HELOCs) based on blockchain technology. In March, it opened a waiting list for crypto-backed mortgages, promising up to $3 million of loans per customer collateralized by Bitcoin or Ethereum. It hasn’t launched this service to the public, so details are limited. Note that these features are what Figure promises and may not be what users end up getting.
Pros
- Long-term, fixed-rate mortgages
- Collateral adjustments
- Complementary features such as HELOCs and an investment marketplace
Cons
- US residents only (in select states)
- Doesn’t accept stablecoins as collateral
Figure says its crypto mortgages will be available to only U.S. residents in select states; Alabama, Arizona, California, Florida, Georgia, Nevada, and New Jersey.
- Bitcoin and Ethereum-backed loans, making it suitable for users with most of their crypto holdings in these two assets.
- Reasonable interest rates.
- A trusted brand in the cryptocurrency sector.
Compare Crypto Mortgage Platforms
| Milo | 8.95% | $5,000,000 | BitcoinEthereumUSDC | None | 30 years |
|---|---|---|---|---|---|
| Figure | 6.99% | $3,000,000 | BitcoinEthereum | None | 30 years |
What is a Crypto Mortgage?
A crypto mortgage is a type of mortgage in which you use your crypto holdings as additional collateral to secure the loan. As long as you repay the mortgage on the agreed terms, you'll get back your crypto assets at the end of the loan term.
How Does a Crypto-Backed Mortgage Work?
Crypto mortgages work similarly to traditional mortgages. You offer your crypto assets as collateral, which paired with the value of your home, means the mortgage ends up overcollateralized.
Because of this overcollateralization, the lender will typically lend you up to 100% of the value of the home, meaning no down payment is required. Different lenders offer different mortgage interest rates, which will vary depending on the value of your crypto collateral relative to the loan amount.
Having sufficient crypto assets is the main criterion for crypto mortgage approval, but lenders also usually look at your credit history, income statement, and the home you intend to purchase.
Overcollateralization means the collateral backing a loan is worth more than the loan itself.
As an example, if you pledge $250,000 of Bitcoin to acquire a $250,000 home using a $250,000 mortgage, the lender now has $500,000 in pledged collateral ($250k of BTC and the $250k home) against the $250,000 loan. The combined home and Bitcoin value would need to decrease substantially before the loan became distressed.
Pros And Cons of Cryptocurrency Mortgages
Pros
- You don’t have to liquidate your crypto holdings early to fund a property purchase.
- Your crypto assets might appreciate during the loan term, and you can claim the profits after repaying the loan.
- Crypto mortgages have less stringent requirements than traditional mortgages.
Cons
- Crypto lenders tend to have less oversight than traditional banks, which increases their risk of failure.
- Overcollateralization; putting up excess assets as collateral to get a crypto mortgage.
- The lender will liquidate your collateral if its value falls too low without you topping it up to make up for the shortfall.
Crypto Mortgage Example
Here’s an example of a simple crypto mortgage:
Michael wants to buy a house worth $500,000, and he has $500,000 in BTC in his crypto wallet. Michael is short on cash otherwise, and would not be able to make a 20% downpayment on a traditional mortgage without selling at least 20% of his BTC. However, selling his BTC would create a taxable event, meaning Michael would owe capital gains tax on any profits on the BTC he sold to fund the mortgage down payment. Likewise, Michael feels BTC will appreciate in the near term and is reluctant to sell his holdings.
Michael hears of Milo, a crypto mortgage provider. He checks their website and decides to get a mortgage backed by his BTC. Michael offers his $500k in BTC as collateral and gets his $500k loan wired to his bank account. He then uses the cash to buy the property.
With Milo’s interest rate of 8.95% and a 30-year term, Michael would need to pay about $3,310 monthly to service his mortgage, which is comparable to a traditional mortgage payment. After paying off his mortgage, Michael will receive his BTC collateral back from Milo. If BTC had shot up 3x in the time frame it took Michael to repay his loan, he’s getting back $1.5 million of BTC.
The situation represents a win-win-win– Michael got a loan at a reasonable interest rate, bought a home with no down payment, and was able to retain ownership of his underlying crypto collateral. If he had converted his BTC to fiat to purchase the house, he wouldn’t have reaped any future BTC price gains while also having to pay capital gains taxes on the sold BTC.
However, there are two sides to that coin.
"While you may not need to make an initial downpayment with a crypto mortgage, there may be costs if your crypto doesn't hold its value. Crypto can be very volatile. If the value of your crypto drops significantly, you may not have enough collateral, and you will be subject to the equivalent of a margin call. It’s wise to have a cash reserve to cover this contingency," says Jeffrey Beal, president of Real Estate Solutions and real estate professor.
If the price of BTC fell by 65+ %during Michael’s mortgage term, he may have to post more cash or BTC as collateral to make up for the shortfall. If he can’t, the crypto mortgage provider may liquidate some of his BTC to avoid losses on their loan. The same thing applies if Michael isn’t able to repay his mortgage for any reason.
To avoid situations where borrowers must post more collateral to make up for a shortfall, crypto mortgage lenders only accept widely-traded coins like BTC and ETH that aren’t too volatile. You’ll likely not find a lender willing to accept meme coins like Dogecoin and Shiba Inu Coin as collateral for a crypto mortgage.
"Keep in mind that if BTC were to drop in value, for example, many lenders may be liquidating, which could create a 'run on the crypto assets' and further drive down values," Beal said.
Crypto Mortgages vs. Traditional Mortgages
Traditional mortgages require assets such as cash, stocks, and bonds as collateral, while crypto mortgages use digital tokens as collateral. Traditional mortgages also involve stricter credit checks and verification than crypto-backed mortgages.
| Crypto Mortgage | No | Not always | Yes | No, meaning you can remain invested and reap potential profits. | 0-30 days |
|---|---|---|---|---|---|
| Traditional Mortgage | Yes | Yes | Only if they have a US Social Security Number | Yes, which can incur a taxable event. | 30-50 days |
Steps For Getting a Crypto Mortgage
Step 1:Determine how much you can borrow based on the value of your crypto holdings.
Step 2:Compare interest rates from different crypto mortgage lenders.
Step 3:Sign up for an account with your chosen lender and verify your identity.
Step 4: Apply for the crypto mortgage and provide the required documentation.
Step 5:If approved, deposit your collateral.
Step 6: Receive your funds.
Who Would Want to Use a Cryptocurrency Mortgage?
Cryptocurrencies are valuable assets, but traditional mortgage lenders won't accept them as collateral. That means you'd need to sell some of your holdings for a mortgage down payment, which can come with considerable tax consequences.
Alternatively, instead of selling your crypto for cash, you can use it directly as collateral for a mortgage from select crypto mortgage lenders. This way, you avoid cashing in your crypto early and losing out on potential future gains.
Crypto mortgages are beneficial for people who have a great deal of their investments parked in cryptocurrencies and not much in other assets. There are several reasons to choose a crypto mortgage over a conventional mortgage, including:
- No down payment required, unlike traditional mortgages that often require you to pay up to 20% of the property value upfront.
- The speed of approving crypto mortgages is faster than conventional mortgages due to less demanding identification and credit checks.
- Individuals with large unrealized crypto gains can acquire a home using their crypto as collateral, without paying capital gains tax on the crypto itself.
- You don’t have a steady job or income, which will make it difficult for traditional mortgage providers to approve a loan for you.
- You can buy rental properties using your crypto as collateral. Doing so lets you remain invested in crypto while acquiring real estate assets that’ll bring in regular income.
"If you are depositing the funds into your personal bank account, you must deposit all of the cryptocurrency that you intend to use a minimum of 60 days from the closing of your new loan," says our real estate expert Jeffrey Beal. "If you are self-employed and you intend to deposit your funds into your business bank account, then you must deposit all of the cryptocurrency funds that you intend to use no later than 90 days prior to the closing of your new loan."
What Crypto Assets do Lenders Accept For a Crypto Mortgage?
Most crypto lenders tend to accept the most widely-used coins like Bitcoin and Ethereum and stablecoins such as USDC and USDT. The reason is that there’s ample market liquidity for these coins, and they tend to be less volatile than obscure digital tokens.
What Happens When Crypto Assets Change in Value During The Mortgage Term?
If the value of your crypto holdings increases during the loan term, it means the collateral becomes worth more than it initially was, and you will benefit from those gains after repaying the mortgage.
On the other hand, if the value of your home and crypto assets slump significantly, you may be required to add more crypto assets as collateral to make up for the difference. If you refuse to add more assets as collateral, the lender may seize and sell your existing asset to make up for the shortfall.
If the lender is forced to liquidate the crypto you posted as collateral (due to falling prices), this creates a taxable event if you’re sitting on a gain. Some or all of the crypto is gone, and a tax bill is coming. Keep this in mind when borrowing, and plan for all contingencies, just in case.
Crypto Mortgage Calculator Example
Here’s the breakdown of a hypothetical crypto mortgage of $500,000 with no down payment secured through Milo, with a standard interest rate of 6.95% and a 30-year term.
- Purchase price in USD - $500,000. You’d need that equivalent in crypto to secure the loan.
The formula for calculating mortgage monthly payments isM = P [ i(1 + i)^n ] / [ (1 + i)^n – 1], where:
- M = Total monthly payment
- P = The total amount of your loan ($500,000)
- I = Interest rate, as a monthly percentage (6.95÷100÷12= 0.0058)
- N = The total number of months in the timeline for paying off the mortgage (30 years x 12 months = 360 months).
It gives M = 500,000 [ 0.0058(1 + 0.0058)^360 ] / [ (1 + 0.0058)^359-1]. To solve, calculate (1+.0058)^360 first. It gives 8. Then, solve for (1+0.0058)^359-1; it gives 8-1 =7.
Hence, the calculation becomes M = 500,000 [.0058(8)]/[7]. Solve the math within the brackets, and it becomes M = 500,000[0.662]. Taking this calculation, the final answer becomes$3,314 as your monthly payment.
Note that we approximated all numbers five spaces past the decimal point, so $3,314 won’t be the exact figure. Likewise, this calculation doesn’t factor in taxes and insurance premiums, which can vary depending on the property’s location. Milo also adjusts the interest rate depending on certain factors.
Upcoming Crypto Mortgages
Moon Mortgage
Moon Mortgage offers home loans backed by customers’ cryptocurrency holdings. It hasn’t yet formally launched, but has begun offering mortgages to select customers under a beta program. The company says its average loan amount so far is $1.6 million, and the most popular cryptocurrency users provide as collateral is ETH.
In October 2022, Moon Mortgage closed a $3.5 million seed round led by venture capital firms CoinFund and Cadenza Ventures. The company earmarked most of the funds to grow its crypto mortgage product, which allows crypto holders to take USD loans backed by their assets and avoid selling considerable amounts to fund a down payment.
Moon Mortgage will first launch in Colorado, Texas, and Florida before expanding to other U.S. states. The collateral customers provide is stored securely withAnchorage Digital, a well-known crypto custodian. You can sign up for the Moon Mortgage waitlist now.
Final Thoughts on Crypto Mortgages
Crypto-backed mortgages are one of the latest innovations in the cryptocurrency industry that you can take advantage of. They work similarly to traditional mortgages but with crypto assets posted as collateral. Unlike traditional mortgages, they’re faster to get and often require no down payment or set monthly payment.
Crypto assets have significant potential to appreciate, and if you’re making that bet, it’s advisable to use your assets as collateral for a cash mortgage instead of selling them and incurring tax liabilities or missing out on potential gains. This way, if the value of your collateral increases, you can reclaim it after repaying the mortgage.
We’ve given you good examples of crypto mortgage providers and how you can apply through them.
Frequently Asked Questions
Yes, you can get a mortgage by putting up cryptocurrency assets as collateral.
A crypto mortgage company is one that provides mortgages to customers secured by crypto assets.
Milo lets you apply for a loan of between $200,000 and $5 million by posting the equivalent amount in BTC, ETH, or USD as collateral.
It’s rare but possible to find a seller willing to receive payments in Bitcoin. Most sellers will demand fiat as payment. However, you can use your Bitcoin to secure a loan from crypto mortgage companies.
It depends on the platform, but you generally need between 100% and 200% of the amount you’re seeking as a mortgage.
Yes, Milo lets you refinance existing mortgage loans using cryptocurrency.
Yes, obtaining a crypto mortgage is usually faster and more convenient than getting a traditional mortgage. There’s identification and verification involved in crypto mortgages, but it’s not as stringent as with traditional mortgages.
Different lenders use different custodians to hold customers’ crypto collateral deposits. For instance, Milo holds deposits securely using Coinbase and Gemini.
Traditional mortgage lenders mostly don’t consider cryptocurrency when verifying a borrower’s assets. They prefer other assets such as cash, bonds, and stocks.
Yes, the borrower must personally guarantee a crypto mortgage. That’s why they’d be required to post more collateral if the value of their initial collateral drops significantly during the loan term.
