Who would have ever guessed that a set of binary information kept in a ledger by means of encryption could be used to make regular mortgage payments? When the second-largest mortgage lender in the nation accepted the initial mortgage payment in cryptocurrency, cryptocurrency entered the US mortgage market. This was a test run to investigate the escalating and governing unpredictability in the cryptocurrency industry. The trial was on mortgage payments, but cryptocurrencies may also be a game-changer in other fields.
Is cryptocurrency a liquid asset?
Technically speaking, a cryptocurrency can be exchanged for cash and is a liquid asset. A million-dollar concern is whether it can be listed as a liquid asset for a down payment, closing costs, and reserves necessary when filling out mortgage applications. (It might turn out to be a question worth a million bitcoins.) To now, lenders have only accepted standard liquid assets to underwrite a mortgage application—cash in bank accounts, IRAs, and money market funds. We believe that lenders may begin treating cryptocurrency investments similarly to stocks, but only to a certain extent of their market value.
How about down payments?
Borrowers can withdraw their cryptocurrency holdings to cover the down payment requirement, but doing so will result in significant tax obligations. There are specific requirements to get the funds transferred to the US account prior to the loan application with a clear paper trail, even if a lender accepts it.
Exploring cryptocurrency options for mortgage payments
Mortgage payments have traditionally been made using online banking, paper checks, electronic checks, escrow accounts, and standing orders for auto debits. Cryptocurrency is kept in a digital wallet that requires a secret pin to send and receive payments. Fintech innovation is needed to build a platform that can house escrow accounts, mortgage accounts, and cryptocurrency wallets in order to make cryptocurrency payments widely accepted. We imagine a combined platform for the transmission of funds that can transform cryptocurrencies based on blockchains into digital funds that can be transferred to escrow accounts for mortgage payments.
Cryptocurrency as reserves
Due to its high volatility, cryptocurrency is the most speculative asset one can own. The value of ten thousand dollars’ worth of bitcoin might be USD1,000 or USD100,000. A mortgage is often taken out for 20 to 30 years, with an average holding period of 2.5 years before refinancing. When securing future mortgage payments, a lender must weigh the danger of accepting bitcoin worth as of today.
A future bubble or revolution for cryptocurrencies?
Unavoidable given the USD2 trillion cryptocurrency ecosystem. Young adults are increasingly buying and investing in cryptocurrencies. To appeal to the younger generation and make trading easy, seamless, and secure, many digital mobile applications and trading platforms are emerging. There are several nations where cross-border real estate transactions, including the buying and selling of homes, now include cryptocurrencies.
Despite that, much work needs to be done to change the momentum in this area. For the efficient transfer of funds, especially between other markets, a myriad of new platforms must be created and integrated. As the Internal Revenue System (IRS) studies this new asset class, taxes may also change. Overall, a paradigm shift is taking place in this field as a result of the continued rise in the value of cryptocurrencies and their widespread acceptance. There will inevitably come a day when cryptocurrencies will have a strong role in the financial sector with a more regulated framework.