In a new twist on crypto-based real estate mortgages, customers of Miami-based startup Milo Credit can buy properties without a down payment, but must provide cryptocurrency as collateral.
Instead of paying for the property directly with cryptocurrency, borrowers can use Milo Credit for collateral by staking their digital assets. This enables cryptocurrency holders to borrow and lend while locking value in tokens and avoiding taxation of capital gains that must be cashed out.
The pledged cryptocurrency transferred to the custodian must be at least the value of the property. At the same time, the property seller receives dollars from Milo.
Interest rates are generally between 3.95% and 5.95%, roughly equivalent to the average borrowing cost of a traditional 30-year mortgage, and borrowers can also make monthly payments in cryptocurrency or cash. Last month, Milo lent up to $10 million on homes and issued a pre-approval letter on a $340 million mortgage.
Back in March, Milo raised $17 million in a Series A round led by venture capital firm M13.
However, using such a volatile asset to finance such a significant purchase is a significant risk, said John Kerschner, head of U.S. securitization products at Janus Henderson Investors.
“Crypto-collateralized lending appears to be inefficient given the volatility,” Kerschner said. “People think Bitcoin will go to the moon, but no one thinks a financial crisis or COVID is coming. Those things will happen.”
To explain the greater volatility of cryptocurrencies, if the ratio of cryptocurrencies to loans falls below 65%, borrowers must therefore put in more cryptocurrencies or cash. However, if the number falls below 30%, Milo liquidates the asset and then keeps it in USD.
While offering home loans with no down payment and using only cryptocurrencies as collateral is a novel prospect, cryptocurrency-based mortgages have grown in popularity in the U.S. over the past year.
Crypto payments company BlockFi has been offering mortgages that borrowers can use to buy properties, while Austin, Texas-based Unchained Capital offers a similar three-year loan with interest rates as high as 14 percent. As of last year, Fannie Mae customers could also pay their down payment in cryptocurrency.
Real estate agents are also increasingly willing to accept cryptocurrencies as payment for properties. Last September, New York-based prime broker Magnum Real Estate Group accepted bitcoin as payment for the sale of three stores at 385 First Avenue in Manhattan.
Earlier, a $22.5 million penthouse in Miami was purchased entirely with cryptocurrency, making it the most expensive crypto real estate purchase to date.
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