Are crypto home loans the next big thing? What you need to know
Crypto home loans are 'inevitable' says digital currency exchange Block Earner.
We know that property has become increasingly unaffordable for many. As a sign of that, the average house price in Brisbane just surpassed $1 million for the first time on record.
But one tech firm has a solution… if you own enough Bitcoin anyway.
What's the solution?
Block Earner is a digital currency exchange and it's just announced Australia's first Bitcoin-backed home loan.
The idea is that while property prices have gone up, so have many cryptocurrency balances. But this leaves crypto investors with a tough decision between keeping all their crypto or cashing it in for a house deposit.
Block Earner's solution means investors can use their Bitcoin as security to get a loan for their deposit. The company already offers other crypto-backed loans, but it has now opened a waitlist for Australia's first Bitcoin-backed home loan.
Similar examples exist in the United States. Milo, for example, actually lets you use your cryptocurrency as collateral for the home loan itself.
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What should you consider?
As the product has only been soft-launched it remains to be seen how lenders will approach these Bitcoin-backed loans.
Typically, lenders need to see 'genuine savings'. You can't simply borrow money through a personal loan to pay your deposit. Lenders want to know you have the money and savings savvy before they commit to giving you hundreds of thousands of dollars.
Regardless of whether you have a ton of Bitcoin or not, and whether you're offered a home loan, you're still borrowing more money and will have to consider the additional repayments of that. You may end up paying a fairly high interest rate as well.
The other thing to consider is what happens if your Bitcoin loses its value or if you can't repay the loan. But one of Finder's resident crypto experts, James O'Donoghue, says the distance between the price of Bitcoin versus what you can borrow likely has enough of a margin that it's actually a fairly low-risk loan. And if you can't repay the loan your Bitcoin would simply be liquidated and with that margin it should cover it comfortably.
"The benefit of this type of home loan for Bitcoin holders is that rather than having to sell their Bitcoin today they can continue to have exposure to the future prices of Bitcoin and essentially pay an interest rate, by putting their Bitcoin up as collateral," O'Donoghue said.
"The downside is, of course, if the value of Bitcoin falls, this loan could be repaid in an instant where the collateral has to be liquidated to protect Block Earner, in this situation. But the distance between the current prices and how far it would need to fall I imagine is advertised."
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