Milo has recently started offering mortgages backed by Bitcoin holdings. While it is yet to diversify into offering any other mortgage product backed by other forms of crypto, it has admitted that that is in their pipeline too. For now, though, its Bitcoin backed loans can be used by customers in the US to buy real estate.
How do Bitcoin backed mortgages work?
Milo gives customers the chance to buy a home, or other real estate, with a low-interest rate mortgage repayable over 30 years. The product itself is not so dissimilar to other mortgages out there, despite what the company is using as collateral to back it. What’s more, borrowers do not have to put down any form of 'hard cash' as a form of deposit. Instead, bitcoin holdings back the entire mortgage, so customers do not have to sell any of their crypto assets to fund any stage of the real estate transaction.
They can hold on to their crypto assets which then has the added benefit of not having to pay any tax on realised gains. Plus, if their crypto holdings appreciate in that time, they do not have to miss out on the rising market. That’s important because mortgages backed by stock holdings do not require borrowers to sell their shares either. Instead, the shares themselves are seen as the deposit or collateral for the mortgage.
As a result, those with large amounts of crypto wealth are no longer penalised for having an alternative store of security. In the past, they have been, as traditional lenders do not entertain crypto holdings as a form of wealth or a reliable store of value.
The company has been well rewarded for its foray into the unknown. It currently already has a lengthy waiting list for this new product. Importantly, customers do not have to be US citizens to access this form of finance. Instead, prospective borrowers can apply for their crypto-backed mortgage entirely online.
That’s crucial because its customer base is immediately much broader than traditionally accessed mortgages in the US. Moreover, as it is entirely online and with Bitcoin backing the loan, Milo can offer this product to those outside the US. Prospective customers do not need to travel to the US to oversee a real estate transaction or even go to an Embassy. The result? Milo has applicants from over 60 countries.
Milo not the first to market but could be the leaders
However, it is not the first company to dip its toe into the crypto mortgage market. United Wholesale Mortgage also tried to offer a product where customers could make mortgage repayments in either Ether or Bitcoin. However, it shelved its plans to provide this beyond its pilot program. That was back in August 2021, so not much more than recent history. It cited uncertainty in the regulatory world as its primary motivation for not taking the idea further.
Milo has persisted. While regulatory uncertainty has not disappeared, it still approaches its mortgage lending with the same rigorous approach that traditional lenders do. For example, it may be happy to loan a customer the total amount of a real estate purchase. But to do that, it runs due diligence on the property itself and on the customer. The result is that they can be happy they are lending money to a reliable customer buying a good quality property.
However, Milo does protect itself (and therefore its customers) against the price volatility of Bitcoin and its peers. The company allows customers to repay the loan with Bitcoin, crypto or a fiat currency. Milo’s Bitcoin backed mortgage contains a margin-call component as with other crypto-backed loans. Therefore, if crypto does go down by a particular percentage, mortgage holders may be subject to that call. However, if that is an unsuitable result for them should such a time occur, customers also are allowed to pledge more to mitigate against it.
With that margin call written into its mortgages and its due diligence process, Milo is offering such a mortgage because they believe it will be a less risky product than many may initially think. Plus, they see crypto-backed mortgages' potential as too big to ignore. Milo's CEO Josip Rupena believes that the crypto mortgage market could, in fact, be worth tens of billions of dollars. The company itself is already loaning millions of dollars to US domestic borrowers and foreign nationals in other types of loans. Therefore, the jump into mortgages was not a giant leap for the firm, plus foreign nationals had already been approaching the company about such a mortgage product. For Milo, therefore, it appears that it was more a question of ‘if not now, then when? ‘
And perhaps that is the most important idea to remember when getting to grips with all the technicalities and nuances of this new type of mortgage. Cryptocurrency, in general, might be a newer type of investment class, but it is no longer actually new. While more cryptocurrencies are being established almost daily, Bitcoin has been around for over a decade. It may have seen a great deal of volatility in that time, but at the time of writing, it has a market cap of almost $700billion. At its highest price point, it was worth over $1,000billion.
With that in mind, it would be more ludicrous to think that companies (especially agile and nimble FinTech ones) would not use Blockchain technology to help invest in one of the most traditional stores of wealth: real estate. While Milo may be the first to offer crypto-backed mortgages, it will definitely not be the last.