By CNBCTV18.com IST (Released)

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One of the latest industries to embrace cryptocurrencies is the housing finance sector. Several prominent players in the space are now offering a “crypto mortgage” that allows users to purchase real estate using their digital assets. Plot ?

In their short time around, cryptocurrencies and blockchain technology have disrupted several industries. From healthcare to supply chain management and more, digital assets and distributed ledgers have revolutionized traditional business practices.

One of the latest industries to embrace cryptocurrencies is the housing finance sector. Several prominent players in the space are now offering a “crypto mortgage” that allows users to purchase real estate using their digital assets. Plot ?

Follow us as we explain crypto mortgages, how they work, their pros and cons. Let’s go.

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What are crypto mortgages?

The term is pretty self-explanatory; a crypto mortgage is a home loan that accepts digital currencies as collateral. This means that you can obtain real estate financing against your holdings of bitcoins and other assets.

Crypto mortgages open new doors for people whose net worth is made up of digital assets. From the volatility of crypto, they now have a way to access the calm waters of real estate without selling their digital assets or losing their HODLer status.

How do crypto mortgages work?

In the case of a traditional mortgage, the applicant would have to prove their income with payslips and bank statements, followed by a thorough credit check. With crypto-mortgages, these formalities are shortened.

All a person has to do is show/prove holdings of certain authorized cryptos (usually limited to a handful of mainstream tokens), and you are eligible for a home loan that is backed by the crypto as collateral.

You can get up to 100% of the amount needed to buy the house by collateralizing crypto of equivalent value. Interest rates vary from agency to agency, but they are much cheaper than unsecured loans.

The term can be between one year and 30 years – a standard for home loans. And lenders in the United States offer loans ranging from $5 million to $20 million. You also have the option of paying monthly installments via accepted cryptocurrencies as well as fiat currency.

Benefits of Crypto Mortgages

The first and most important advantage of crypto mortgages is that you don’t have to sell your crypto holdings. Crypto optimists believe that current prices are only a fraction of what they may be. Therefore, holding digital assets and selling them to real estate is much better than selling them outright.

The second big advantage is the reduction of taxes. In most countries, including India, crypto taxes are backbreaking. However, you are relieved of the tax burden with a crypto mortgage because you are not selling your digital assets, you are just securing them.

The third advantage is the omission of documents such as credit scores, payslips and bank statements which otherwise hinder home loans. Lenders in the United States do not necessarily ask for credit scores and bank statements, although having these documents ready is always a plus.

Finally, if the value of the collateral increases significantly after you pledge it, you may qualify for an increased loan or a second loan on the increase in value.

Disadvantages of Crypto Mortgages

The most common downside comes from the volatility of crypto assets. In the event of a sudden drop in prices, you may need to pledge more collateral, or it could lead to the liquidation of the asset. While traditional cryptos are unlikely to fall to zero, you will need to make other collateral arrangements if they do.

The second disadvantage is that you cannot use the pledged digital assets for trading or any other activity. The assets are held by the mortgage provider, and they are only stored and nothing else. As a result, you might miss out on making money from trading, staking, or yield farming the cryptos you promised.

The final downside is that the choice of cryptos you can pledge is very limited to mainstream cryptos like BTC, ETH, USDC, and USDT. If you are a holder of another crypto, crypto mortgages might not be right for you.

Conclusion

The crypto mortgage industry is currently booming in North America, with the likes of Figure and Milo taking center stage and offering people loans backed by digital assets.

Very soon, India could also have its own players. More importantly, we could see the crypto mortgage industry move beyond real estate, making inroads into several other businesses and industries.