In a\u00a0Linkedin post<\/a>, Mike Cagney co-founder and CEO of blockchain startup\u00a0Figure Technologies<\/a> \u00a0announced plans for a cryptocurrency-backed mortgage to launch in April. No cash down payment is required, but the real estate mortgage is secured by both the property as well as 100% of the loan value in cryptocurrency \u2013 Bitcoin or ETH. Plus the rate could be as much as 5.99%. So if someone wants to buy a $20 million home, they deposit $20 million in collateral.<\/p>\n We can totally see how this double security works for the lender. But in terms of borrowers, it might only appeal to those who \u2013 for some reason \u2013 can\u2019t get a mortgage any other way. We\u2019ll show below why this is an expensive route even if someone wants to keep HODL onto their cryptocurrency.\u00a0<\/p>\n According to Cagney, \u201cThe only underwriting is to make sure you don\u2019t have so much debt that the crypto can\u2019t suffice for ability to pay.\u201d If the crypto prices collapse, there is a potential margin call, but there is a generous cushion, as Cagney pointed out.<\/p>\n If the cryptocurrency price rises significantly, some of the collateral provided to Figure can be withdrawn provided it\u2019s more than 125% of the loan value. Monthly payments can be made in fiat or using collateral.<\/p>\n One other detail: Cagney said the crypto used as a deposit wouldn\u2019t be rehypothecated. In other words, it won\u2019t be lent out. But we wondered how you define rehypothecation in the crypto world. For example, does it include or exclude staking? Cagney confirmed the collateral would not be staked, it would be dormant at a third party custodian.<\/p>\n Our research shows the average American will make a\u00a012% downpayment<\/a>\u00a0on a mortgage. With Figure, you\u2019re making a 100% downpayment, albeit in a volatile asset. And a 30-year conventional mortgage would\u00a0cost around 4.16%<\/a>, whereas the rate offered by Figure is for a non-qualifying mortgage which will be around 5.99%. We assume that the home buyer does not want to sell their cryptocurrency.<\/p>\n It would make more sense to go to a DeFi exchange like Aave and deposit enough ETH to borrow the 12% downpayment. That would cost you around 3.14% at today\u2019s prices. So even if you put down 25% of your ETH as collateral (more than needed) for the 12% home downpayment, you\u2019re already significantly ahead.\u00a0<\/p>\n With this combination, our crude calculations below show that the mortgage would cost almost 25% less than the Figure option. There are plenty of caveats, such as DeFi rates vary considerably.<\/p>\n However, the 75% balance of the cryptocurrency that\u2019s not used for the downpayment loan could then be staked. And current staking rates are 4.81%. Again, it\u2019s not without its risks, and rates vary. After offsetting that staking income against the mortgage payment, the net payment on a $1 million home loan would cost less than $10,000 a year. That\u2019s less than one sixth of the Figure cost.<\/p>\n Crypto is volatile and all the rates are variable, so who knows what the final figures might be. But it\u2019s more than likely that the Figure mortgage will prove more expensive unless the borrower has no other options.<\/p>\n Don\u2019t get us wrong. It makes a ton of sense for\u00a0Figure<\/a>. And Figure is already a major player in the mortgage space, having acquired mortgage lender\u00a0Homebridge<\/a>. It\u2019s also doing some cool stuff with bank-backed stablecoins through the\u00a0USDF consortium<\/a>.<\/p>\nWhy a crypto mortgage won\u2019t make sense for most<\/h4>\n
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