A Miami mortgage company is letting homebuyers use the cryptocurrency they already hold as collateral for home loans — and not requiring them to put down a deposit.
Milo is willing to lend up to $5 million at a time on individual home loans. These require borrowers to pledge the full amount of ownership in Bitcoin and Ethereum cryptocurrencies 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 case the borrower defaults.
This means that owners could potentially benefit on two fronts by buying properties that are likely to increase in value, while also benefiting from any increase in the value of their cryptocurrency.
Vincent Burniske, 63, used a seven-figure, crypto-rooted loan to buy two small apartment buildings in Coral Gables, Miami
But it also comes with an increased risk of using an already volatile asset to fund a purchase in the property market which could also face a downturn in the months ahead – just as borrowing costs rise.
The person selling the property receives dollars directly from Milo, while the owner is additionally allowed to make monthly mortgage payments in crypto or cash.
Milo has safeguards in place to ensure that they are not left behind in the event of a sharp drop in the value of the cryptocurrency.
If the value of the crypto collateral falls below 65% 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%, 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 past month alone. Rates are in line with the average borrowing costs of a traditional 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 to buy a home
Milo allows borrowers up to $5 million over a 30-year term at 3.95-5.95%
“We were going to refine that and expand it,” Milo founder Joseph Rupena, 38, told Bloomberg. “Milo will seek to provide other long-term solutions for those with crypto wealth, not just mortgages.”
But cryptocurrency is known for its volatility.
Bitcoin has had five days in the past year where it has plunged at least 10%. As of Wednesday evening, a Bitcoin was worth $39,200, while an Ethereum was worth $2,877.
S&P 500 stocks, meanwhile, have seen only two such declines in the past 50 years. Beyond its volatility, there is still a fundamental disagreement about the value of bitcoin, or even its value.
Bored Ape NFT graffiti in the Wynwood neighborhood of Miami, Florida. The city tries to establish itself as the center of the crypto revolution as startups bank on an influx of workers and venture capital for a chance to go big
In 2020, Bitcoin soared 305% but is now down over 40% from an all-time high. Other altcoins, including Ether, also fell by a similar amount.
Cryptocurrencies have not always moved in the same direction as stocks and other investments, although they have often done so in recent months amid concerns about rising interest rates.
“It’s a particularly big risk to take on an asset as personal as a house,” said John Kerschner, head of US securitized products for Janus Henderson Investors. Bloomberg.
“A crypto mortgage seems inefficient given the volatility. People think Bitcoin will go to the moon but no one thought the Great Financial Crisis or Covid was coming. These things happen.
But that didn’t put off Vincent Burniske, who used a seven-figure, crypto-rooted loan to buy two small buildings in Coral Gables, Miami.
Burniske, 63, a sports media consultant, plans to use his new purchases as rental properties and has no qualms about embracing the new kind of coin-based loan structure.
“I was convinced I was going the conventional lending route. It’s comfortable. That’s what we know. But at all times there are better financing options and you really have to be careful.
For him, the fact that he was allowed to keep his crypto while getting a loan using some of his Bitcoin and Ethereum holdings for the mortgage, was a huge draw.
“If you cash in, you have to pay a big tax and you leave a lot of benefits on the table because you get out early,” he explained.
David Lykken, who runs a mortgage consultancy and advisory firm, is unconvinced by this new approach.
“There are always early adopters trying new things. The cryptocurrency does not have enough stability or the trust of the wider investment community. Certainly not now – maybe never,” he said.