The entry of digital currencies into the lending business has been rumoured for some time, and cryptocurrency mortgages were highly anticipated.
The mortgage
But what does it mean to take out a mortgage?
A mortgage is a capital loan of conventionally €20,000.00 or more that has a long duration and is secured by insurance, third parties, assets or a combination of two or more of these elements.
The bank or institution issuing the loan earns interest which is deferred over the years, tending to be, but not exclusively, a French instalment (i.e. the customer pays the interest in a decreasing manner so that the instalment initially consists mainly of interest and to a lesser extent of capital; the two percentages are reversed as the years go by).
The risk for the credit institution is called Loan To Value (LTV). For example, if the bank values a property at €200,000.00 and grants a loan for €100,000.00, the LTV is 50%.
The guarantees put in place and necessary for the contraction of the loan can be insurance (life, workplace, property), the guarantee granted by third parties (a partner, a relative within the first degree, an employer, etc.) or the property itself (in this case in the event of insolvency, the institution would reclaim the property).
100% in everything
Mortgages in crypto, at the moment BTC and ETH in particular, are a reality and are only offered in the United States of America. How do they differ from the classic ones outlined above?
Unlike traditional mortgages, the sums paid out in Bitcoin mortgages, for example, do not require collateral, or rather can be secured by a similar amount in one’s virtual wallet.
Installments can be paid either in fiat or in crypto with automatic withdrawal from the wallet (MetaMask, etc.), they do not require any other type of guarantee, they are paid out within a few hours as opposed to the average of two months for classic mortgages and they do not draw on the risk centre (i.e. they are also suitable for bad payers).
The value of the property is 100% financed and the platform granting the loan takes all the risk.
This instrument constitutes a real revolution for both the crypto and the classic banking worlds.
Figure Technologies’ cryptocurrency mortgages
The news that Figure Technologies, a cryptocurrency lender, would use Bitcoin and Ethereum as collateral exploded like an atomic bomb in the world of finance and virtual currencies.
The normalization of this tool also in crypto has created a real bull run and all the major coins have gained in value.
For the time being, the service will only be active in the US, but in the future, it will also be accessible at the main European and Asian banks and platforms, so as not to be left out of the market in a period of severe crisis.
The service will operate on the chain held by the Figure Technologies group, namely Providence, which already collaborated in similar projects.
The main holders will now be able to take advantage of an instrument that normalizes the world of virtual currencies in the eyes of the real economy, a godsend for the entire sector.
Ledn, a company present in America and Canada, is also entering the world of credit with mortgages with cryptocurrency collateral.
Adam Reeds (CEO of the company) said.
“Most people who hold vast bitcoin wealth cannot yet use their assets to qualify for a mortgage at a bank”.
This is what prompted Ledn to cover the crypto asset of mortgages.
The company’s CEO is targeting $100 million in BTC mortgages by Q1 2022.
Source: https://en.cryptonomist.ch/2022/03/25/cryptocurrency-mortgages-revolution-industry/