Milo is prepared to lend out up to $5 million a time on individual home loans
A Miami mortgage firm is allowing homebuyers to use cryptocurrency that they already hold as collateral for home loans – and not asking them to make a down-payment.
Milo is prepared to lend out up to $5 million a time on individual home loans. Those require borrowers to pledge the full amount of the property in cryptocurrencies Bitcoin and Ethereum before transferring them to a custodian for safe keeping.
They then make regular monthly payments at similar rates offered for regular mortgages, with the stored crypto available to the lender should the borrower default.
It means the homeowners could potentially benefit on two fronts by buying properties whose value is likely to rise, while also benefitting from any rise in the value of their cryptocurrency.
But it also comes with increased risk using an already volatile asset to finance a purchase in the property market which may also face a slowdown in the coming months – just as borrowing costs go up.
The person selling the property receives dollars directly from Milo, while the homeowner is further allowed to make monthly mortgage payments in either crypto or cash.
Milo has safeguards in place to ensure they’re not left broke in the event of a shock plunge in the value of cryptocurrency.
If the value of the crypto collateral drops to below 65 per cent of the loan amount, the borrower will be asked to provide more crypto or cash.
And if the value of the currency drops below 30 per cent, Milo will immediately liquidate the Bitcoin or Ethereum and store that amount in traditional US dollars.
So far, Milo has approved $340 million of mortgages in the last month alone. The rates are in line with the average borrowing costs for a traditional 30-year mortgage and between 3.95% and 5.95%.
We’re going to refine this and get it bigger, said Milo founder, Joseph Rupena to Bloomberg. Milo will be looking to provide other long-term solutions to those with crypto wealth — not just mortgages.
But cryptocurrency is notorious for its volatility.
Bitcoin had five days in the last year where it plunged by at least 10%. As of Wednesday night, one Bitcoin is worth $39,200, while an Ethereum is worth $2,877.
The stocks in the S&P 500, meanwhile, had only two such drops in the last 50 years. Beyond its volatility, there’s still fundamental disagreement about how much a Bitcoin is worth, or even if it’s worth anything at all.
In 2020, Bitcoin soared 305% but is now down more than 40% from an all-time high. Other altcoins including Ether also dropped a similar amount.
Cryptocurrencies haven’t always moved in the same direction as stocks and other investments, though they often have in recent months amid worries about rising interest rates.
It’s an especially big risk to take for an asset as personal as a home, said head of U.S. securitized products for Janus Henderson Investors, John Kerschner to Bloomberg.
A crypto mortgage seems inefficient given the volatility. People think Bitcoin will go to the moon but nobody thought the great financial crisis or Covid was coming. These things happen.