Article

Crypto-backed mortgages allow borrowers to use their cryptocurrency holdings—such as Bitcoin, Ethereum, or stablecoins—as collateral to secure mortgages for real estate purchases. This innovative financial product offers distinct advantages and risks, and is subject to specific requirements and implications for lenders and borrowers.

How Crypto-Backed Mortgages Work

• Collateral Pledge: Borrowers deposit sufficient cryptocurrency into an escrow account, which acts as security for the mortgage. The lender applies a Loan-to-Value (LTV) ratio (often 50% or lower), meaning the crypto’s value must far exceed the loan amount, to buffer against volatility.
• Application Process: The borrower must provide proof of ownership of crypto assets. Lenders may also require standard financial checks: income, credit score, Know-Your-Customer (KYC), and Anti-Money Laundering (AML) compliance.
• Disbursal: Mortgage funds are issued in fiat currency for property purchase, while the crypto collateral is locked (not sold by the borrower).
• Repayment and Liquidation: If the value of the crypto falls, borrowers may have to post additional collateral. If the margin falls too low and additional collateral isn’t provided, the lender may liquidate assets to cover the loan.

Typical Requirements

• Accepted Coins: Most lenders accept major cryptocurrencies—Bitcoin, Ethereum, and stablecoins (e.g., USDT).
• Collateral Value: Crypto value must typically be 1.5x the loan amount (150% LTV), to provide a safety buffer for market swings.
• Borrower Eligibility: Verification can include credit history, income, address, identity (KYC), and compliance (AML).
• Lender List: Fintech companies like Milo, Figure, Nexo, Ledn, and Salt currently offer such products, with varying terms.

Benefits

• No Forced Liquidation: Borrowers do not need to sell crypto holdings, preventing capital gains tax events and letting them maintain a long-term investment position.
• Up to 100% Financing: Some lenders offer full mortgage amounts against crypto collateral, eliminating the need for cash down payments.
• Innovative Access: Expands homeownership opportunities for crypto-rich individuals who may lack traditional cash reserves.

Risks and Implications

• Volatility Risk: Crypto prices can fluctuate sharply, potentially causing the collateral value to drop below the required threshold, forcing additional deposits or triggering liquidation.
• Security Risk: Centralized exchanges that host collateral may face breaches or hacks, putting assets at risk.
• Tax Implications: If assets are liquidated to cover a margin call, this could create taxable events, including capital gains.
• Regulatory Uncertainty: Government agencies like Fannie Mae and Freddie Mac are considering counting crypto as an asset for mortgage risk—but with caution due to taxpayer exposure and financial system stability.
• Market Adoption: While fintechs lead adoption, many traditional lenders remain wary or unwilling to accept crypto collateral due to risk and regulatory uncertainty.

Important Considerations

• Overcollateralization: Lenders require crypto collateral well above the loan value—to mitigate risk from price drops.
• Eligibility: Lenders scrutinize borrower profiles for financial stability, KYC, and AML compliance beyond just the crypto asset base.
• Interest Rates and Terms: Rates and loan terms vary widely by lender and asset type, and may reflect additional risk premiums.

Crypto-backed mortgages provide significant flexibility and access to home finance for those with substantial digital assets. However, potential borrowers must carefully weigh volatility, security, tax, and regulatory risks, and understand each lender’s specific requirements and policies before proceeding. As the space evolves, broader adoption may bring new opportunities and frameworks, but caution and thorough due diligence are essential for both borrowers and lenders.