A Miami mortgage company is allowing homebuyers to use cryptocurrencies they already have as collateral for home loans — and doesn’t require them to make a down payment.
Milo is willing to lend up to $5 million on individual home loans. These require borrowers to pledge the full amount of ownership in the cryptocurrencies Bitcoin and Ethereum before transferring them to a custodian for safekeeping.
They then make regular monthly payments at rates similar to those offered for regular mortgages, with the stored crypto available to the lender in the event the borrower defaults.
This means that homeowners could potentially benefit on two fronts, buying properties that are likely to appreciate in value while also benefiting from an increase in the value of their cryptocurrency.
Vincent Burniske, 63, has used a seven-figure crypto-anchored loan to buy two small apartment buildings in Coral Gables, Miami
However, there is also an increased risk in using an already volatile asset to finance a purchase in the real estate market, which could also face a slowdown in the coming months – as well as rising borrowing costs.
The person selling the property receives dollars directly from Milo, while the homeowner is still allowed to make monthly mortgage payments in either crypto or cash.
Milo has safeguards in place to ensure they don’t go bust in the event of a sudden drop in the value of the cryptocurrency.
If the value of the crypto collateral falls below 65 percent of the loan amount, the borrower will be asked to provide more crypto or cash.
And if the currency’s value falls below 30 percent, Milo will immediately liquidate Bitcoin or Ethereum and store that amount in traditional US dollars.
Joseph Rupena, 38, is the man behind Milo. So far, Milo has approved $340 million in mortgages in the last month alone. The interest rates correspond to the average borrowing costs for a classic 30-year mortgage and range between 3.95% and 5.95%.
Miami — fast becoming America’s crypto capital — is now home to Milo, which allows borrowers to use cryptocurrency as collateral for home purchases
Milo grants borrowers up to $5 million over 30 years at 3.95-5.95%
“We wanted to refine that and make it bigger,” 38-year-old Milo founder Joseph Rupena told Bloomberg. “Milo will look to offer other long-term solutions to those with crypto assets – not just mortgages.”
But cryptocurrency is notorious for its volatility.
Bitcoin has had five days in the last year where it has dropped at least 10%. As of Wednesday evening, one Bitcoin is worth $39,200 while one Ethereum is worth $2,877.
Stocks in the S&P 500, on the other hand, have had only two such declines in the last 50 years. Aside from its volatility, there are still fundamental disagreements about how much a bitcoin is worth, or if it’s worth anything at all.
Bored Ape NFT graffiti in the Wynwood neighborhood of Miami, Florida. The city is trying to establish itself as the center of the crypto revolution as startups rely on an influx of workers and venture capital to make it big
In 2020, bitcoin surged 305% but is now down more than 40% from an all-time high. Other altcoins, including ether, also fell by a similar amount.
Cryptocurrencies haven’t always performed in the same direction as stocks and other assets, although they often have in recent months amid concerns about rising interest rates.
“It’s a particularly big risk for something as personal an asset as a home,” John Kerschner, head of US securitization products at Janus Henderson Investors, told Bloomberg.
“A crypto mortgage seems inefficient given the volatility. People think that bitcoin will go to the moon, but nobody thought that the big financial crisis or Covid would come. These things happen.’
But that hasn’t deterred Vincent Burniske, who has used a seven-figure crypto-anchored loan to buy two small apartment buildings in Coral Gables, Miami.
Burniske, 63, a sports media consultant, plans to use his new acquisitions as rental properties and has no concerns about the new type of credit structure with the coins.
“I was convinced that I would go down the conventional credit route. It is comfortable. We know this. But there are always better funding options out there and you really have to be careful.”
For him, being able to keep his crypto while securing a loan using part of his Bitcoin and Ethereum holdings for the mortgage was a huge benefit.
“When you cash out, you have to pay significant taxes and you leave a lot on the table because you get out early,” he explained.
David Lykken, who runs a mortgage advisory and advisory firm, is unconvinced by this new approach.
“There are always early adopters out there trying new things. Cryptocurrency doesn’t have enough stability or the confidence of the broader investor community. Certainly not now – maybe never,’ he said.