Digital Mortgage

Crypto mortgage: The rise of cryptocurrency in the mortgage industry

Technological innovations are fast evolving and playing a major role in mainstream business processes in recent years. Technologies such as automation, artificial intelligence (AI), and machine learning (ML) are eliminating human errors from various time- and resource-intensive tasks, while financial transactions using blockchain-based cryptocurrency are becoming widely accepted. We are, no doubt, in the midst of a digital revolution.* However, mortgage payment is still a rather traditional task. Paper or electronic cheques, escrow accounts, and standing instructions for auto debits are still the preferred methods of mortgage payments. However, questions about using cryptocurrency for mortgage are becoming increasingly common. In response, we’re slowly seeing the emergence of crypto-friendly mortgage lenders willing to cater to individuals holding the bulk of their wealth in cryptocurrency.

Financial tech companies such as Milo and Figure are leading the charge in this emerging crypto mortgage market. Both companies are offering 30-year term loans to buy US real estate for clients who furnish an equivalent value of cryptocurrency as collateral. Milo accepts bitcoins, ether, and stablecoins for mortgages up to $5 million, while Figure accepts only bitcoins and ether and will lend up to $20 million. While these lending institutions will consider credit score, debt, and income to comprehensively understand a borrower’s financial situation and ensure their ability to repay the loan, they don’t base their lending approvals on these. While the prospect seems attractive to crypto enthusiasts, mortgage cryptocurrency has its unique set of benefits and risks.


The benefits of crypto mortgage lending

The obvious benefit of not having to sell your cryptocurrency to use it as a collateral is that you don’t have to pay the taxes associated with the sale of an asset. Additionally, since you still own the cryptocurrency, you can reap the benefits of future increases in its value. Another advantage of crypto for mortgages approach is that a financial institution will have alternatives other than foreclosure if a borrower defaults on payments.


Risks in crypto mortgage lending

The volatility of cryptocurrency can complicate things for the lender and the borrower. A change in the value of a borrower’s cryptocurrency can affect interest rates, and if the value drops by a certain margin, he/she would have to add to the collateral to maintain the mortgage. It is, therefore, important to know the lenders’ terms and conditions in such cases. Milo, for example, will ask a borrower to increase collateral if the value of the cryptocurrency drops to 65% of the outstanding loan amount; if the value goes down to 30%, Milo will liquidate the borrower’s cryptocurrency to US dollars.


Frequently asked questions about crypto mortgage

Lenders allow cryptocurrency holders to use the currency as a collateral rather than face the hassles and tax consequences of cashing in on the cryptocurrency they have. There are definitely more questions and doubts that one must clear before actually using crypto for mortgage.

  • Can you buy a house with cryptocurrency?
  • Not directly unless the seller is willing to trade their house for cryptocurrency. But with some lenders now open to the idea of accepting cryptocurrency as a collateral, more institutions are sure to follow suit.

  • How do I pay my mortgage?
  • That’s up to the lender. You could have the option of paying in either US dollars or cryptocurrency.

  • What happens to the cryptocurrency while I pay the mortgage?
  • Cryptocurrency used as collateral obviously can’t be sold and will return to the borrower’s control once you pay off the loan. But if the value of the cryptocurrency increases while it is used as collateral, the buyer may be able to withdraw some of it.

  • Given an option, should one opt for a crypto mortgage over a traditional mortgage?
    Considering the volatile nature of cryptocurrency, a traditional mortgage is still a safer bet for most people, provided they meet the criteria for loan approval.

How can Infosys BPM help?

Early adopters of new technologies and processes get a head start over the competition. Infosys BPM can guide and support lenders and servicers who wish to enter the digital mortgage space with a comprehensive suite of services to streamline digital mortgage operations.

*For organisations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed organisational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like living organisms will be imperative for business excellence. A comprehensive yet modular suite of services is doing precisely that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.


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