Are Crypto Mortgages the New Path to Homeownership?

The mortgage finance industry has gone through monumental changes over the past several decades. Once upon a time, if you wanted to buy a home, you marched down to the bank or credit union branch where you had your checking or savings account, sat down with a mortgage officer, and were handed a mortgage offer—or maybe two options, if you were lucky. That’s still a legitimate way to shop for a mortgage, of course. But today, would-be homeowners have a wider range of choices. And some of them are brand new.

Enter Crypto Mortgages

A few years ago, most people were asking, “Crypto what?” But today, crypto is all over the news—and not just in the financial press. People Magazine has published its share of crypto-related stories, too, perhaps because there are plenty of rags-to-riches and true crime stories that involve crypto trading.

Cryptocurrency continues to grow more mainstream. A recent poll by NBC revealed that a surprising 21% of Americans have experience buying, trading, or using crypto. That’s a 5% uptick in crypto users since November of 2021. They’re finding that crypto isn’t so ethereal or theoretical anymore. Journalists are writing about crypto in down-to-earth and easily understood language. The stuff that’s in crypto investors are holding in their crypto wallets can buy them a Subway sandwich or a Whopper at Burger King now. They can fund their PayPal and Amazon accounts with crypto. And more recently, they can take out a mortgage by leveraging their crypto holdings, too.

The first company to offer crypto-backed mortgages was the financial technology company Milo, though others, notably  Figure, are jumping on the bandwagon. In the case of Milo, homebuyers can take out a 30-year fixed rate mortgage and borrow up to $5 million. These mortgages are basically collateralized loans. Borrowers must pledge and hold an amount of cryptocurrency equal to the amount they’re borrowing.

What’s So Great About Crypto Mortgages?

Crypto loans offer four primary advantages for homebuyers who have a lot of coins stashed away on crypto exchanges:

• They’re easier to qualify for. Milo, today’s leader in crypto mortgages. doesn’t even perform a credit check when you apply for a loan. So if your credit profile isn’t ideal or good enough to qualify for a traditional mortgage, you still have an opportunity to fund your home purchase with a crypto mortgage.

• You may be able to buy a home without a down payment. To qualify for the best traditional mortgage rates, your mortgage lender will likely require you to put down a down payment equal to 20% of your home’s value. If you don’t have that much cash saved, a crypto mortgage may be right for you. Crypto lenders often allow you to borrow the full purchase price of your home.

• You can get funded very quickly with a crypto mortgage—sometimes within 24 hours. In today’s competitive real estate market, that’s a real boon. It can easily take 30 days or more to close on a traditional home loan. Home sellers will often accept the offer from the buyer who is least likely to encounter funding problems. They want to close on their home sale as soon as possible.

• Crypto loans are also ideal for investors who wish to remain invested in the crypto market. While crypto suffered a massive blow recently, with Bitcoin, for example, losing more than half of its value during the crash, many investors who follow a buy-and-hold strategy are hopeful for a market upswing in the future. Others simply don’t want to sell their crypto at such a loss to fund a home purchase. With a crypto mortgage, don’t have to cash out of your crypto to borrow against it. You can hang in for what some analysts are predicting: a crypto price surge. You also reap the benefit of avoiding the capital gains tax you’d otherwise have to pay if you cashed out and made a profit.

Crypto Mortgages Aren’t Perfect

It’s tough to name a financial opportunity that doesn’t have some kind of downside. And crypto mortgages are no exception. Let’s look at some of the reasons why you might not want to jump into a crypto mortgage too quickly.

• Crypto is unpredictable, to say the least. The value of your coins can swing high or low, sometimes in an instant. The market is highly reactive, in part because crypto trading platforms are open 24/7. That means investors don’t always take the time to consider market or larger economic news before making trading decisions. Crypto investors are less likely to “sleep on it” before acting.

Here's how crypto’s volatility affects crypto mortgages. Let’s say you take out a mortgage to buy a $300,000 home. On January 1^st, you pledge $300,000 worth of coins to collateralize your crypto loan. Then, on February 1^st, the crypto market hits one of its not-infrequent bumps and the value of the crypto that’s backing your mortgage is suddenly only $200,000. At that point, your lender may require you to come up with another $50,000 in coins. That’s known as a margin call. If you can’t come up with the additional crypto, your lender is within its rights to liquidate your assets. You’re then on the hook for $100,000—money you’ll have to pay back, with interest.

• You’re not in charge of your investment destiny. When you take out a crypto loan, you give up control of the coins you’ve pledged. That means you can’t take advantage of market opportunities to trade at the right moment. If you’re accustomed to active trading, you might find this restriction off-putting. You may miss out on making some money because your trading hands are tied. That’s something you have to accept when you take out a crypto mortgage.

• The crypto you borrow against is yours, but it’s not free. Bear in mind that all crypto mortgages come with interest payments. That’s how crypto lenders make money. So if paying interest on money that’s yours doesn’t appeal or make sense to you, a crypto mortgage may not be the right choice for you. In addition, while crypto mortgage interest rates may be lower than personal loan rates, right now, you can get a lower rate on a traditional mortgage than you can with a crypto loan. In late July 2022, Milo was offering a rate of 6.95% on a 30-year fixed rate loan. According to Money.com, on July 28, 2022, the average rate on a traditional 30-year loan was 5.3%. So if you’re able to secure a traditional loan, that may be a better move. The lifetime cost of owning your home is likely to be lower with a traditional mortgage.

What’s the Best Type of Mortgage for You?

There’s no single definition of mortgage. From private loans to government-guaranteed, fixed-rate to variable-rate, long-term to short=term, they’re a diverse lot. Finding the mortgage that best suits your needs can—and should—be a time-consuming process. You have a lot to gain by finding the right loan. Thoroughly researching your options can save you tens of thousands of dollars. Crypto mortgages may be worth exploring out of curiosity for any homebuyer, but for some borrowers, they may prove essential. If you’re committed to staying in the crypto market for the long haul, if you lack sufficient cash funds for a down payment, or if your credit history won’t qualify you for a traditional mortgage, they can open an otherwise closed door to homeownership.

Author Bio:

Susan Doktor is a journalist, business strategist, and serial homeowner. She writes about a wide range of personal finance topics, including real estate, credit markets, and financial technology. Her contribution comes to us courtesy of Money.com.