- Homebuyers can now get a mortgage using bitcoin as collateral.
- Milo, a fintech company, has launched what it calls “the world’s first-ever” crypto mortgage.
- An expert says this model may not be the best option for a typical borrower.
Buyers looking for a home in the US can now apply for a crypto mortgage, but be sure to read the fine print.
Fintech company Milo has launched what it calls “the world’s first-ever” crypto mortgage. The Florida startup says homebuyers around the world can now use its platform to finance the purchase of a home in the United States with bitcoin.
But there’s a catch: Homebuyers don’t have full control of their assets. If they want to sell their property, they will have to repay their loan – in US dollars – to Milo in full before the company releases a lien and transfers the bitcoin back. Additionally, to qualify for the mortgage, a buyer must own a bitcoin value equal to the full sale price of the home.
Milo says that by “pledge” crypto, borrowers keep their bitcoin for the duration of the loan, allowing them to continue accumulating value if their real estate and crypto investments appreciate.
“It’s a way for a consumer to continue to hold on to their bitcoin while building wealth as it appreciates,” Josop Reupena, CEO and founder of Milo, told Insider. “But at the same time giving them the advantage of buying real estate – historically that was really one type of scenario or the other.”
With mortgage rates at pre-pandemic highs, housing affordability falling, and available homes snatched up with all-cash offers, a crypto mortgage could be a tempting opportunity for a certain group of potential buyers. After all, the value of bitcoin has soared 9,000,000% over the past decade. But it is still a very risky investment.
Erin Sykes – the chief economist at 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, high-reward people who are relatively resilient to different market swings,” Sykes told Insider. “So I think it’s a good idea for the average person – absolutely not.”
How it works
Someone who has crypto wealth equal to the selling price of the house they want can get a 30-year fixed rate U.S. crypto mortgage from Milo. 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 assets.
Milo determines whether a borrower qualifies using their crypto wealth instead of a FICO score or income on a tax return. Crypto borrowers do not require a cash down payment at the time of purchase. Once approved, Milo funds 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 recover the amount owed by the borrower. If a homeowner wants to sell their property, they must pay Milo the full amount of the loan in US dollars.
This is where it gets tricky.
Why a Crypto Mortgage Isn’t for the Typical Borrower
While Milo says he is the first lender to use bitcoin as collateral for a mortgage, the concept of leverage against crypto is nothing new. A handful of lenders, including BlockFi, Avalanche, and Nexo, also allow borrowers to take out loans or earn a return with crypto. Milo is just one of the first companies to apply the model to mortgages.
Traditionally, those who borrow against their crypto have to continually refinance their loans, Reupena said. He said Milo’s model eliminated that need, giving 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 is best suited for an investor or someone who doesn’t have many ways to spend newly amassed crypto wealth.
“It would be for someone who has a high risk tolerance and believes in continued crypto appreciation and doesn’t want to sell yet,” Sykes said, adding that it might make “using as more attractive loan guarantee”.
Nonetheless, bitcoin’s volatile value makes crypto mortgages a risky option for typical homebuyers.
For example, if the value of bitcoin decreased after buying the house, the borrower’s interest rate on their mortgage would tend to increase.
“I think people who can access mortgages because they have the income to do so and meet the traditional criteria should definitely get a conventional mortgage,” Reupena said.
Milo declined to say how many crypto borrowers he has, but Reupena told Insider he has processed over $400 million in loans and has a waiting list of 7,000 people.