Topic: Crypto Mortgages Let Homebuyers Keep Bitcoin, Put Down Nothing (Read 234 times)

Now letting my bias for a moment, there is a target population, as it's always the case with loans and it's in most cases people who have no other options, and people who strongly believe their coins will do an x3 or x5 after the next halving and don't really do the extra math when it comes to a 5 years loan. 14%? But I can put some coins in some staking scheme and get just from that 10-20 APR, enough to cover the interest. Taking such a loan when Bitcoin was $10000, great idea, right? Taking one when it was 60k...

There are takers, and unless Celsius and others are lying, there are thousands who would take such long-term loans. Of course, you have to take those numbers with a grain of salt, but seeing that they manage to lose $54 Million in one event and still stay afloat, seems the scheme is lucrative enough.

Oh, and one more thing, to us it does seem like a lot but for other countries, it seems like a small rate, some will realize too late that the interest is in $ and that is added on top of their currency devaluation, quite a few will end trapped because they've never had a second thought on this.

The difference is that we are paying premium for that since it is a brand new deal. Yes, 14% is a big amount if we are talking about a rare situation where dollar would be the only thing or an item would be the only thing you show as collateral, but when you are doing it for what bitcoin could mean to the bank then they will make it a bit higher because it is a new idea and a new type of loan and collateral.

So, for the time being if you believe that it would be smarter to keep your bitcoins and pay a premium amount of interest, just so that you could earn even more if you held bitcoin then it would be a good idea to pay that high rate, if not then cash in your coins.

Absolutely crazy interest rates. Terrible deal, surely not that many people will want to use these types of loans with that sort of interest? The thing is for longer term loans, i.e a mortgage you're probably looking at fixing yourself in at a certain interest rate, and then after that you're probably going to be subjected to even more.

Yeah, I'm sorry absolutely terrible idea from bottom to top.


I doubt it, with interest rates like that. Also, there's some just a better market out there already with fiat loans. However, I'm a firm believer that we're already heading for a huge recession, probably bigger than 2008/2009. I just talked about it in the speculation section, but basically the governments have offered incentives to keep the ball moving in the housing market, but these incentives basically made it more attractive for people to put less down, and basically stretch their budget, when the interest rates ramp it up, which they will a lot of people are going to be struggling. Imagine, if you secured a Bitcoin loan at 14%, then a recession kicks in, I would suspect these companies would be looking to increase it the next time you have to mortgage, as I suspect they'll be working on a fixed term period, and then renegotiating the loan.

Let's face it, this is barely going to affect many people at all and I'd be surprised if more than a hundred people ever take up such an offer. However it names for a nice marketing gimmick for the bank involved. The terms are weighted heavily towards the bank and a 14% interest rate is obscene, you'd be much better off just selling your bitcoin - taking a calculated hit on taxes - and buying the house outright. It is basically using a high volatility asset to fund a relatively low volatility asset with onerous terms to the borrower.

Please tell me one thing - while using cryptocurrencies as a collateral, how frequently it needs to be re-evaluated? This re-evaluation is a part of a risk management practice underta6by many borrowers in many countries. I am not sure about US.

So ideally, every person using cryptos as a collateral, they would need to send more token to their collateral contract ar certain interval if the prices are going down. But the lender will not return the cryptos if the price is increasing. Good to know that US is ahead in such things but that increases their risk as well.

It has no other benefits than holding.
Look at them as locked coins that will be sold if they go below the locked price - % unless you are able to get more collateral and other than that nothing. They are just a replacement for your credit score or for your proof of income.


Now raise it up a level and imagine your loan was in Luna and the bank was liquidating your collateral in UST, not USD. 
2008 would be a storm in a teacup compared to what would have happened in this case.

     I am quite curious, wouldn't this be just like holding bitcoin or any crypto currency? Apologies for not being able to see but can anyone mention how this is better than holding or trading on an exchange? Because if it really has better benefits than holding or trading on leverage on exchanges, I would really love to try out this new thing. Currently searching for better investments or money making ways that does not take as much time as trading for hours on a daily basis(preferably crypto-related). Thanks.

This is so true. Just take an example of current market. If someone would have mortgaged a loan before the drop and if they had to pay back in bitcoin for monthly interest then it would have been costly affair for sure. Man just check the current drop. They had to repay more satoshi’s since to pay x amount monthly they had to cover up that  x plus the devalued costing. I’m not sure if I’m able to explain this correctly but in my own language I understood how difficult it would be to loan out property or take the loans other way around in bitcoin.

1.I don't believe in this "no down payments necessary" part.Down payments are always necessary,the payment method doesn't matter.
Perhaps Milo wants to make this whole "crypto mortgage" business model more attractive by not requiring down payments.I don't think that this is going to be a sustainable business model in the long run.
2.Capital gains tax is required only if the  financial asset increased it's value/price above the acquisition price.If someone bought BTC at 50K and BTC suddenly became 30K USD,that guy doesn't have to pay capital gains tax for selling it's BTC at 30K.I'm not an expert on capital gains taxation, but this is just my opinion on how the tax works.Putting your capital at risk,just for the sake of avoiding capital gains tax?It doesn't seem like a reasonable idea to me.

Hopefully this does not catch on among the population, because if people start paying for their homes using crypto installments (and people are notoriously bad at mortgages even with paper money), then I can see another 2008 rumbling in the next few years when the entire bubble pops again. Followed by the obligatory anti-crypto wave of sentiment this will cause.

Again, this only happens if the majority of people jump onboard this, which fortunately is not going to happen because (paradoxially) of the current anti-crypto centiment among Americans right now.

The only benefit is avoiding the capital gains tax which is huge sum for millions but we are risking the asset which equals to the property amount and still paying the bills every month until the tenure ends, for Bitcoin we can say that it will be high but for 30 years no one can actually tell because we don't have the data to analysis for that much longer time period.

Of course, they would but they wouldn't expect it for such a high drop, there are far smaller increments on which you'll be asked to put more collateral.

The problems with this:
- you will need to get more collateral if the price goes down, if you're short on cash or coins it might be impossible for you
- you risk being liquidated in a drop only to see that after one month the coin is up by 50%, you basically sold at the bottom
- there is a trap for some of those that allow you a 70% drop in collateral before liquidation. If liquidation does happen below the levels of your mortgage so it's not able to cover all up you're still going to have to pay the difference
- far higher interest rate compared to a good credit score with a bank

The pros:
- you don't have to sell your coins, so you can keep them till they do a x10 or x100 or whatever
- you can take out collateral if the coins go up and while you're paying your loan, a thing impossible in mortgages
- you don't need a credit score, nor do you need proof of income

Basically, this is the advantage to people who have no real constant income, bad credit scores, who are going long on those coins, and more importantly, probably the most important of all, the ones that have twice or thrice the amount in coins, who could with a snap of their fingers reinforce the collateral position with double or triple the sum.

Let's start with some theory
A mortgage is a common law legal instrument that is used to create a security interest in real property held by a creditor as security for a debt, usually a mortgage loan. At the same time, the real estate itself remains a pledge within the framework of this transaction.
Now a question. for example, half a year ago, a person decided to purchase a residential property worth $120,000 on a mortgage. At that rate (60,000+ dollars per bitcoin), 2 bitcoins was exactly 120,000. They were pledged. It's May 2022. Bitcoin price is $33,000. Question - will the lender require an additional deposit of collateral cryptocurrency in the amount of almost 1.2 more bitcoins? Not ? Yes ?

Considering the volatility of it could cause a lot of unexpected payments, it is not really that much wise to want both of them available at all times. I mean when you lock them up for mortgage upfront payments, then it becomes a collateral but it grows when the price goes up which is a great thing and that’s the aim, but what happens when it doesn't for months, or stays low for years after you start? Just like the covid deal for example. This is why I keep saying that bitcoin should never get into the loan market at all, makes no sense to me.

Let’s assume that you started to get loans in form of bitcoin one day, which is still possible even today, then how do you pay back with interest, if you can then someone else shouldn't be able to because it's limited and not everyone can get interest since it will end and there won't be any coins left.

If the price drops then they are going to ask you deposit more coins as the collateral and at some point they could liquidate it if it keeps on falling. Imagine giving away your coins as collateral and they could liquidate it, its a bad idea to begin with anyway but hey some new guy in crypto space are probablygoing to dig this but majority wont

If the price goes up then they probably wont return part of your coins back to you until you made a full repayment on the mortgage 

When they did that I think they might have seen that the price have gone down by 8% and the current market value is still low. To be honest, I did not expect the volatility to rise that fast since few months we are seeing more or so stable value.
I think it would be wise to make smart contracts before handing it over to the real estate agent or booker because at the end of the day one might have legal benefits in the breach of contract.
Taxes are for sure higher and the collateral part is very interesting since the fact is even if you get your bitcoins back, you can still wait when the time is right for you,no one can pressure you to sell as well, so despite Volatility I think it's a great idea and will help many who have major investment in crypto.

Volatility is going to be very big issue in this regard. The problem is, they may accept the crypto down payments at the given rate of exchange value but the value could be drastically going up and down and may create problems in the contract. The valuation either will be needed to lock at certain costs and then send the bitcoin or in other way the whole payment will need to be transferred directly to the banks as soon as real estate owner or broker takes it.

Using bitcoin as collateral has the same risk as above due to its volatility. Return / Repayments could be little problems. What if the price at which it was lend is much lower but recurrent is higher? Either party would be in loss based on this math.

So it's like trading stocks with a margin-approved brokerage account, isn't it? Too much risk I think, and even more so if it is for a house you plan to live in. If you have a lot of money and this is another of your risky investments, I can understand it, but I don't see many advantages, better to take a normal mortgage, as you say.

Generally it’s not wise to use Bitcoin as collateral for anything. Remember when Bitmex was the largest futures exchange? Remember that nasty crash we had back in late 2018.

Most of it was due to the positions being held in Bitcoin as collateral. Problem was when Bitcoin lost its value the position needed more BTC to keep open. However since value of Bitcoin dropped it worked as a domino affect pretty much and why we had a huge cascading liquidating event that month.

For mortgages it’s not a good idea either and that 14% interest rate is just crazy.

This will be available for only resident of the country or the state. A lot of provision in US to help investment but I wish OP can share the website for such disclosure and interest rate?