Miami Startup Offering ‘Zero Down’ Mortgages; Crypto as Collateral

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In Brief
  • Miami-based startup Milo Credit allows borrowers to put a 'zero-down' payment on their mortgages.

  • However, this requires borrowers to put up their crypto as collateral.

  • Crypto mortgages have been gaining popularity in the past year, including Austin, Texas.

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In a new twist on crypto-based real estate mortgages, clients of Milo Credit, a Miami-based startup, can purchase property with no down payment but must put up cryptocurrency as collateral.

Rather than paying for property directly with crypto, borrowers can take out a mortgage with Milo Credit by pledging their digital holdings. This enables crypto holders to borrow, while keeping value locked in the coins, and avoiding any potential taxes on capital gains by having to cash out. 

The pledged crypto, which is transferred to a custodian, must amount to at least the value of the property. Meanwhile, property sellers receive dollars supplied by Milo.

With rates generally between 3.95% and 5.95%, roughly the average borrowing costs for a traditional 30-year mortgage, borrowers can also make monthly payments in either crypto or cash. Milo has lent up to $10 million on homes, issuing pre-approval letters on $340 million of mortgages over the last month.

Back in March, Milo raised $17 million in a Series-A funding round, led by VC firm M13.

Heightened risk

However, using such a volatile asset to finance such a significant purchase is a notable risk, according to John Kerschner, head of U.S. securitized products for Janus Henderson Investors.

“A crypto mortgage seems inefficient given the volatility,” Kerschner said. “People think Bitcoin will go to the moon but nobody thought the great financial crisis or COVID was coming. These things happen.”

To account for crypto’s greater volatility, borrower’s must consequently put up more crypto or cash if the crypto-to-loan ratio falls below 65 percent. However, if that figure drops below 30%, Milo then liquidates the assets and subsequently keeps them in U.S. dollars.

Crypto mortgages

While offering home loans with no money down and using only crypto as collateral is a novel prospect, crypto-based mortgages have been gaining popularity across the United States over the past year.

Crypto payments company BlockFi has been offering collateralized loans which borrowers can use to buy property, while Austin, Texas-based Unchained Capital offers similar three-year loans with interest rates up to 14 percent. Fannie Mae clients could also use crypto for their down payments as of last year.

Real estate brokers have been increasingly open to accepting cryptocurrencies as payment for properties as well. Major New York broker Magnum Real Estate Group accepted Bitcoin as payment for the sale of 3 stores at 385 First Avenue in Manhattan in September last year.

Earlier, a $22.5 million penthouse in Miami was bought entirely with cryptocurrency, which had made it the most expensive real estate purchase in crypto to date.

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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage.

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