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You may now get a mortgage using cryptocurrency, but should you?
Milo, if you haven't heard, is now offering the world's first cryptocurrency-backed mortgage loan.
It's a 30-year product that allows you to use your cryptocurrency holdings (now simply Bitcoin) to buy a house. The loan is then repaid monthly in USD, Bitcoin, or a stablecoin, plus interest.
Milo keeps your crypto in a secure location during the loan, and once the balance is repaid in full, it's freed and returned to you.
It's an attractive proposition for crypto investors, especially when you consider that there's no requirement for a down payment, tax returns, or a credit check. Should you jump right in and join the company's rumoured long "waitlist"? Here's what you should think about first.
What if the value of your cryptocurrency plummets?
The most significant danger associated with these mortgages is how much the value of bitcoin can vary. Currently, the company only accepts Bitcoin, which has seen its share of price drops in recent years. In reality, Bitcoin's value has plummeted by more than 20% in just six months.
When the value of your crypto collateral drops, it might lead to a number of consequences: For starters, it may have an impact on the interest rate on your loan. The lower the value of your home, the greater your loan-to-value ratio will be, and the higher your interest rate will be. Milo's loans are updated each year dependent on the value of the cryptocurrency.
If your Bitcoin value falls below 65 percent of your loan amount (meaning you'll need to deposit more coin), the corporation may issue a margin call, and if it falls below 30 percent, the company may sell your assets and store the USD balance instead. Obviously, if you're looking to invest in crypto for the long run, you'll want to avoid the latter.
Do you recall the housing bust?
The 2007-2008 housing crisis was exacerbated by loose mortgage lending practises. Lenders gave mortgages to borrowers who were unqualified, and when property prices fell, many of these borrowers found themselves upside down on their loans, owing more than their homes were worth.
While I'm not claiming that these crypto-backed loans would achieve the same results, eliminating the credit check and down payment requirements is a risky throwback to the early 2000s, and buyers may find themselves in a similar situation if housing prices fall.
If these loans gain traction (so far, just one lender is offering them; although, a few others appear to be developing products), it could signal wider problems for the lending industry as a whole. But that's a different tale altogether.
Should you use your cryptocurrency to its full potential?
Crypto-backed mortgages aren't all awful, and for the proper borrower, they have some clear benefits. To qualify, you don't need excellent credit or tax returns, there's no down payment, and the procedure is far faster than typical loans.
They could be a decent choice if you're not eligible for a conventional or FHA mortgage (at least one that's inexpensive), as long as you're aware of the dangers and confident in your crypto's future value. But what if you can acquire a traditional mortgage? You'd be better off doing exactly that.
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By Crypto PiratesMilo, if you haven't heard, is now offering the world's first cryptocurrency-backed mortgage loan.
It's a 30-year product that allows you to use your cryptocurrency holdings (now simply Bitcoin) to buy a house. The loan is then repaid monthly in USD, Bitcoin, or a stablecoin, plus interest.
Milo keeps your crypto in a secure location during the loan, and once the balance is repaid in full, it's freed and returned to you.
It's an attractive proposition for crypto investors, especially when you consider that there's no requirement for a down payment, tax returns, or a credit check. Should you jump right in and join the company's rumoured long "waitlist"? Here's what you should think about first.
What if the value of your cryptocurrency plummets?
The most significant danger associated with these mortgages is how much the value of bitcoin can vary. Currently, the company only accepts Bitcoin, which has seen its share of price drops in recent years. In reality, Bitcoin's value has plummeted by more than 20% in just six months.
When the value of your crypto collateral drops, it might lead to a number of consequences: For starters, it may have an impact on the interest rate on your loan. The lower the value of your home, the greater your loan-to-value ratio will be, and the higher your interest rate will be. Milo's loans are updated each year dependent on the value of the cryptocurrency.
If your Bitcoin value falls below 65 percent of your loan amount (meaning you'll need to deposit more coin), the corporation may issue a margin call, and if it falls below 30 percent, the company may sell your assets and store the USD balance instead. Obviously, if you're looking to invest in crypto for the long run, you'll want to avoid the latter.
Do you recall the housing bust?
The 2007-2008 housing crisis was exacerbated by loose mortgage lending practises. Lenders gave mortgages to borrowers who were unqualified, and when property prices fell, many of these borrowers found themselves upside down on their loans, owing more than their homes were worth.
While I'm not claiming that these crypto-backed loans would achieve the same results, eliminating the credit check and down payment requirements is a risky throwback to the early 2000s, and buyers may find themselves in a similar situation if housing prices fall.
If these loans gain traction (so far, just one lender is offering them; although, a few others appear to be developing products), it could signal wider problems for the lending industry as a whole. But that's a different tale altogether.
Should you use your cryptocurrency to its full potential?
Crypto-backed mortgages aren't all awful, and for the proper borrower, they have some clear benefits. To qualify, you don't need excellent credit or tax returns, there's no down payment, and the procedure is far faster than typical loans.
They could be a decent choice if you're not eligible for a conventional or FHA mortgage (at least one that's inexpensive), as long as you're aware of the dangers and confident in your crypto's future value. But what if you can acquire a traditional mortgage? You'd be better off doing exactly that.
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