What is a Crypto-Backed Mortgage?
Crypto mortgages involve using cryptocurrency holdings as collateral for a traditional mortgage or loan.
Steps: How do you get a Crypto-Back Mortgage?
- Lender – To get a crypto-backed mortgage, the borrower first gives their cryptocurrency to the lender as security. The lender then calculates the maximum loan amount based on the value of the collateral.
- Rates – Before determining interest rates, payback terms, and loan duration, the lender assesses the acceptability of the cryptocurrency offered as collateral. Once the terms are agreed upon, the borrower deposits the agreed cryptocurrency amount into the lender’s escrow account. In an escrow account, a third party holds and manages funds, property, or documents on behalf of both parties involved until certain criteria are met.
- Collateral – During the loan term, the collateral remains locked up, with borrowers typically required to maintain a specific buffer between the value of the collateral and the loan balance to control volatility risks. Payments are usually made in fiat currency, and once the repayment is complete, the borrower receives the collateral back.
- Buffers – if the value of the cryptocurrency falls significantly, a margin call, which is a demand for additional collateral due to fluctuations in the collateral value, may occur. In such a situation, the borrower must provide the necessary margin to restore the required buffer.
- Loan – In loans with cryptocurrency as collateral, a buffer is a predetermined percentage difference between the loan balance and the collateral value. For example, suppose a borrower’s cryptocurrency collateral is worth 1 BTC, and the lender stipulates a 20% buffer. In that case, the borrower must provide the collateral equivalent to 1.2 BTC (1 BTC 20% of 1 BTC) to create a buffer against potential volatility risks throughout the loan tenure.
Cryptocurrency Mortgage Calculator
How Much Can I Afford? Key Points
It’s essential to make regular deposits throughout your savings period. This helps you to reduce the effect of price volatility because you’ll be buying fewer coins when the prices are high and more when they are low. This is known as the cost average effect.
Savers can benefit significantly from compound interest as the interest gains increase exponentially over time.
Interest and compound interest are paid in the investment currency, meaning they can rise or fall in value over time. This is called “compound interest 2.0”, and it offers enormous opportunities to increase returns.
The value of your deposits can also rise or fall over the savings period.
Crypto lending combines the features of fiat term deposits and crypto DCA plans. This means that you receive interest payments and participate in the investment currency’s price development.
Where can I get a 30-year Crypto Mortgage?
Milo is the most popular Bitcoin-backed mortgage on the market today! Get pre-qualified today!