Crypto mortgages hit the headlines recently when a lender in Miami announced they would allow homebuyers to pledge their Bitcoin as collateral – no other down payment needed. Previously, Bitcoin and other digital currencies had to be converted to U.S. dollars and be sourced from an eligible account to make it more traceable. With the new mortgage plan by the lender in Miami, a company called Milo, no dollars are needed.
That has some Canadians questioning whether something similar might be on the horizon here. There have been some rumors circulating social media that banks may soon be accepting cryptocurrency as a source of a down payment, but nothing official has been confirmed. That said, a digital asset platform called Ledn in Toronto has announced plans to offer a Bitcoin-backed mortgage soon.
So, what does this all mean for the real estate market? For some people, paying in crypto could be a huge benefit. By pledging their bitcoin, they don’t need to sell it and pay tax on the proceeds. And once their mortgage is paid in full, so the proposal goes, their Bitcoin is returned. This could open up the market to a whole other sector of investors, for good or bad.
But this new kind of mortgage comes with a host of possible risks. Bitcoin, and other digital currencies, have a history of volatility – with four major crashes in the last four years. If Bitcoin was used as collateral for a home purchase and it ends up sinking to less than 65% of the mortgage amount, the borrower may be asked to pledge more Bitcoin to the lender or be forced to liquidate. This leaves consumers vulnerable.
For the time being, experts are predicting it will take a long time before crypto mortgages emerge in Canada because of how tied the country is to government-issued currency. So, for now, prospective homebuyers will simply have to sell their investments and use the cash for a traditional mortgage.