First we need to know what Bitcoin is before we speak about What is a Bitcoin Mortgage?
First, you must know that this article is hypothetical and merely just our expressed opinions. It is not considered financial advice and any questions should be asked to your mortgage loan originator.
Bitcoin Mortgages via government agencies to our understanding do not exist as of the time of this article. However, if Bitcoin Mortgages or crypto mortgage lending were to exist one day, we would not be surprised. Let us discuss the potential below.
Bitcoin is the original cryptocurrency that transacted on the Bitcoin blockchain via a Bitcoin wallet using Bitcoin miners to power the transaction. Bitcoin is stored in a personal Bitcoin wallet, the transactions of a Bitcoin uses a blockchain. The blockchain is a database, it is the railing system that uses computers/nodes to verify that the transaction is valid, as the blockchain uses mutual distributed ledgers. The miners are the computers/nodes that help process the transactions solving complex algorithms on how best to hash/store the transactions, the winning miner gets paid a piece of Bitcoin for this, thus a transaction fee. These miners create blocks made up of several transactions in the blockchain using processors. This powers the blockchain by using other computing power.
The computers/nodes validate these blocks that were created by the miners. Each transaction takes about 10 minutes to be worked by the miners. Several transactions can make up a block, making up about 1 megabyte. Once the 1mb block is complete, it then moves onto another block and is attached to the new block. This data structure is called a Merkle Tree. You may ask, How to send Bitcoin from one to another? Or what are the benefits of a Bitcoin mortgage?
Benefits of a Bitcoin Mortgage
Bitcoin Mortgages vs Bitcoin Margin Loans – Margin Calls
There may be a private lender that might provide what they call a Bitcoin Mortgage, perhaps lending up to 50% or 60% LTV. However, it may be no different than obtaining a margin loan, which are borrowed funds pledged against your Bitcoin.
Margin loans generally have features called ‘margin calls’. Meaning if your Bitcoin were to plummet in value, then you are responsible to come up with the difference immediately. These lenders have the ability to sell any Bitcoin that you may have as a down deposit if you fail to come up with the margin call, much like how margin calls work in the securities market. This is not our definition of a Bitcoin Mortgage, but rather a margin loan. We are not saying that this Bitcoin ‘margin loan’ model is not beneficial to someone, however one must be prudent and do due diligence prior to this style as the risks can be great.
A Bitcoin Mortgage to us means a loan solely based on Bitcoin, lent in Bitcoin and paid back in Bitcoin, and the lender and consumer either both take on the risk for the price of Bitcoin or just the lender. It would be more ideal for only the lender to settle the loan in Bitcoin rather than to have the customer pay in Bitcoin due to risk. The borrower may have the option to pay in USD, it would be best for the price of Bitcoin may vary and could rise so high that the borrower would want to walk away from the property. The lender may subsequently sell the loan, which then gets pulled together in a CMO or CDO plain vanilla tranche.
This would be a Bitcoin backed mortgage, not a crypto currency mortgage deposit or crypto mortgage that has margin loan functions and features.
Buying Real Estate with Bitcoin – What is a Bitcoin Mortgage?
Even though there may not be an opportunity currently to have a Bitcoin Mortgage, this does not mean that you can not buy real estate with Bitcoin.
There have been plenty of transactions made in Bitcoin to buy real estate, from a $1.6 million dollar property in lake Tahoe that accepted 2,739 Bitcoins. In 2014 to a Miami homeowner accepting about 80% of the purchase price in Bitcoin, 455 Bitcoins and some cash for a $6 million dollar property.
However, even though there have been transactions made in Bitcoin to buy property, this does not mean it is easy to accomplish.
In Conclusion – What is a Bitcoin Mortgage?
Most would never realize how large and complex Bitcoin really is. Bitcoin uses more energy than several small countries. The database structure is larger than some of the largest companies on earth. To date, it has never been hacked. It was created just a few months after the Lehman Brothers collapse. On January 3, 2009 the first Bitcoin was mined. There is a reason why Bitcoin is so popular, even though at times it can be fairly slow, especially to scale. a business. Bitcoin is also different than Ether, as Ether has features called a smart contract.