What Is Crypto Mortgage And How Can You Get One?
Many mortgage lenders and brokers aren't sure where they stand on cryptocurrencies like Bitcoin since they are newbies to the financial sector. The volatility of Bitcoin and the difficulties in identifying its origins have rendered it of little utility for purchasing property in the UK, notwithstanding the positive experiences of certain investors.
As a way to clarify the fallacies surrounding the purchase of property with Bitcoin and other virtual tenders, we've created this guide to cryptocurrency and mortgages. Find out whether cryptocurrencies may be used to pay for a housing deposit, to declare income for the affordability assessment of a mortgage lender, or to pay down an existing mortgage.
When it comes to mortgages, what is a "crypto mortgage?"
When it comes to mortgages, many financial institutions have rethought the process by taking into account the value of your crypto assets. With a crypto mortgage, you can use your cryptocurrency as a down payment for a house instead of selling it. HODLing is, most of the time, the plan. These crypto mortgage providers encourage their users to deposit their digital assets as collateral and get cryptocurrencies in exchange.
But is it already applicable in banks and financial institutions in the centralized finance industry? The short answer is no.
It's not feasible to finance your down payment with cryptocurrency itself, but you may do it using the income you make from it. To find a mortgage lender willing to accept this capital, you'll need to sell the currency and provide documentation of its acquisition and sale. Even if you can find a lender who is willing to work with you, the options are limited.
If your mortgage deposit is made up of Bitcoin profits, many mortgage providers will turn you down outright because they are wary of funds that aren't fully traceable. Bitcoin mortgage deposits may be accepted by roughly a dozen UK banks.
Lenders who are willing to examine mortgage applications with deposits derived from bitcoin gains converted to fiat currency do so with severe conditions. For example, the lender will want to see proof that the crypto monies can be tracked, converted into pounds, and validated before approving a loan.
For extra assurance that no money is being laundered, some lenders even send applications involving Bitcoin deposits to the financial crime unit. To prove the contribution trail, they may also request a statement from the fund platform and a bank statement.
In other words, no. Cryptocurrency is well-known for its wild swings in value, making it a risky investment. Investing in the stock market should be no more than 5% of your whole portfolio, according to personal finance experts.
The use of cryptocurrencies to pay for anything, including mortgages, is fraught with danger, according to these experts. To begin with, the amount you pay now may be less than the value of your purchase or payment tomorrow, depending on market conditions. As a result, a $1,500 Bitcoin mortgage payment today may easily turn into a $3,000 mortgage payment in the near future.
Experts claim that the most popular cryptos, such as Bitcoin and Ethereum, are unsuitable for use as a form of payment or purchase because of their volatility. Kiana Danial, the author of "Cryptocurrency Investing for Dummies" and the person behind the Instagram account @Investdiva, recently told us that "we are not there yet" in terms of innovation and stability changing the dynamic.
Go to decentralized finance. This means venturing into Defi projects built on the blockchain.
Robert Heck, vice president of the mortgage at online mortgage marketplace Morty, says there are many ways a borrower may utilize cryptocurrencies in the mortgage transaction. Each method is subject to different state rules and regulations, but here is a rough outline of what to expect.
Cryptocurrency is beginning to be accepted as an asset when you apply for a mortgage, and lenders are taking notice. Your crypto assets would not be used to make a payment, but they may be taken into account when you apply for a mortgage. Lenders may assess how much you can borrow by looking at all of your assets, including your real estate, money, and cash equivalents, on your mortgage application. A person's crypto assets may soon be treated the same way that a stock portfolio would be viewed, according to Heck.
Last but not least, many things would have to alter if you could pay your mortgage in bitcoin. E-check, paper check, phone, and/or online bill pay are all methods of payment now accepted by most mortgage lenders. In other words, none of these payment options are intended to be used with a bitcoin wallet.
Hot and cold wallets are used to hold digital currency, which differs in terms of accessibility and simplicity of usage. To send and receive money, a wallet's public key is required. Private keys (similar to bank passwords) are used by each wallet owner to access and transfer their money.
It is imperative that lenders have the proper infrastructure in place to accept Bitcoin mortgage payments from customers who are used to making payments via their bank. It's also worth noting that setting up escrow accounts for taxes and insurance may need discussion with several third parties.
It will take at least a few years for everyone to benefit from this administrative makeover. It was the first of its type, conducted by United Wholesale Mortgage from August to October of 2021, and the firm found it was not worth it for the few Americans interested in paying their mortgages with Bitcoin at the time to add more effort to the process.
Regulation of cryptocurrency lending has been brought to light by the Securities and Exchange Commission (SEC) and individual state agencies. The regulators have labeled these high-yielding investments as securities.
However, despite the mounting regulatory burden, the industry is expanding rapidly. Owners of cryptocurrencies may earn interest or its equivalent in a variety of ways. Decentralized finance (DeFi) and conventional finance have varying degrees of overlap. Investors and regulators alike may need to know the specifics of how each one is set up and operated if they are to make informed decisions in this complex environment.
Trading and speculating in cryptocurrency is at the heart of crypto loans. To borrow crypto is in high demand since hedge funds and a wide spectrum of investors have discovered that they may earn money by putting leveraged bets on tokens and crypto derivatives. Because of their trading techniques, these individuals are able to afford to pay exorbitant interest rates for crypto loans from intermediaries. Cryptocurrency investors get returns that considerably outpace those of traditional financial institutions, after deducting a small profit margin.
After the Securities and Exchange Commission (SEC) declared Coinbase Lend to be a security, the company withdrew the program's debut date in September. Celsius and Nexo were served with cease-and-desist orders for their interest-bearing products, and the New York Attorney General's Office sought information from three other firms earlier this month.
Although the company has made a policy framework proposal that targets Coinbase's crypto lending product in part, it refused to comment on the matter for this report.
Coinbase's projected Lend-like product isn't the only one out there. BlockFi, Nexo, and Celsius are among them. Cryptocurrency is accepted and revenues are paid to clients through their goods. BlockFi discloses that it invests its assets in stocks and futures and lends them out in order to produce a return of roughly 8% on bitcoin and other tokens. Regulators in Alabama, New Jersey, Texas, and Vermont are investigating BlockFi's Interest Account product.
Founded in March 2019 by two entrepreneurs and a self-described Bitcoin maximalist, Hodlnaut is a financial platform for individual investors. The website allows users to lend their cryptocurrency to margin traders, who would otherwise be unable to get crypto loans, in order to earn a higher rate of interest.
DAI, USDC, and USDT all have an interest rate of 12.00 percent (effectively 12.73 percent annually), whereas BTC has an interest rate of 7.46 percent (essentially 7.46 percent annually). Users may withdraw their funds at any moment and don't have to make a minimum deposit to do so. Crypto lending platform Hodlnaut is one of the up-and-coming businesses that aims to be the industry leader.
As far as earning income on your crypto assets goes, Hodlnaut is one of the most secure options. You may also withdraw your money at any moment since the site pays you interest on a weekly basis.
YouHodler is an EU-based firm based in Switzerland that specializes in crypto-backed lending with the option of fiat loans. Loans may be obtained in a variety of fiat currencies and stablecoins (such as BTC, ETH, XRP, and others) with collateral in these and other popular cryptocurrencies.
It's important to know that you may deposit and earn interest on another cryptocurrency or fiat cash if you don't already have the coin you want to deposit.
In addition to stablecoins, YouHodlers supports four fiat currencies, seven stablecoins, and 15 cryptocurrencies, including Bitcoin.
Stablecoins may be borrowed from CoinRabbit for an indefinite period of time. There is also just a ten percent interest rate on your borrowings. In addition, the platform keeps track of your collateral and sends you an alert if the market conditions suddenly change and your collateral is about to be liquidated.. When taking out loans using bitcoins as collateral, you don't have to give up ownership of your bitcoins since after you repay the loan, you'll receive them back.
Bitcoin's volatility extends beyond the nitty-gritty of its operations. According to Coindesk's Bitcoin tracker, Bitcoin had a value of $11,471 as recently as October 2020. It just surpassed $66,000 for the first time in its history.
The value of Bitcoin has climbed tremendously over the last 11 years, yet the value changes drastically from day to day. "If you are hoping to make regular monthly payments, this volatility creates a tremendous danger," says Nashville-based certified financial adviser Jeanne Fisher. In light of Bitcoin's volatility, making a $1,000 mortgage payment each month may need vastly different quantities of the cryptocurrency.
Even if you decide to cash out your Bitcoins in order to pay your mortgage each month, you'll still have to pay taxes on the profits if Bitcoin's value has increased since you bought it.
In time, as the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS) become more familiar with Bitcoin and cryptocurrencies, tax policies may alter. There are already capital gains taxes in effect, so we can see how profiting from cryptocurrency trading might affect your tax bill.
There are tax consequences for selling an asset or security for a profit after owning it for an extended period of time. A long-term capital gains tax rate applies if you sell your cryptocurrency after holding it for more than a year. Capital gains tax rates for single filers are 0% if you earn up to $80,000 per year, 15% if you earn up to $441,450 per year, and 20% if you earn more than that, according to the IRS.
If you've had your crypto for less than a year, you'll be taxed at the same rate as if you had it for a full year.
Paying your mortgage using cryptocurrency now doesn't make much sense. With the recent approval of a Bitcoin futures ETF, it's possible that crypto may find a home in the toolkits of more regular investors. However, for the time being, cryptocurrency is best seen as a speculative alternative investment that accounts for a very tiny percentage of an investor's overall portfolio.
And, in case there's no chance for you to use your crypto to pay for mortgages, there are lending institutions on the blockchain network where you can actually borrow cryptocurrencies and exchange them to fiat currencies.