How the super-rich use crypto to secure a mortgage

In the fourteen years since its launch, cryptocurrency has become firmly part of the global financial exchange market.  The popularity of cryptocurrency, otherwise known as digital or virtual currency, notably exploded with the launch of Bitcoin in 2009 and grew from simply a computer-generated 21st Century concept to a recognised means of exchanging currency.  Today, retailers and other merchants accept Bitcoin as payment for goods and services including Microsoft and Dell as well as a number of luxury goods retailers.  Two countries, El Salvador and The Central African Republic, have adopted Bitcoin as legal tender and Bitcoin users can even load up a Bitcoin debit card which they can use to make quick and easy payments.

Using cryptocurrency to secure a loan

Paying for goods and services with cryptocurrency is just the beginning for users of Bitcoin and other such crypto.  Financial services providers are becoming ever more innovative in their designs for the uses of cryptocurrency.  Most recently, some lenders have started offering crypto loans – it’s a move that’s proving to be popular with those wealthy individuals who need quick access to capital but for whom liquidity is a problem, mainly due to their wealth being tied up in illiquid assets, such as properties and other alternative investments.

The process works in the same way as a lombard loan. Credit is offered in the form of a loan secured against a borrower’s investment portfolio, except in this case the loan would be secured against the crypto portfolio instead.   Once documents are completed and terms agreed, the collateral from the crypto portfolio is ‘locked’ by the lender before the loan is paid out to the borrower in the fiat currency of their choice (£s, $s, €s etc).

Those looking to buy real estate can then use their loan to purchase super prime property. This could be outright but also as a deposit to secure a mortgage or pay stamp duty fees.  The higher the deposit, the more favourable the mortgage terms.  In addition, borrowers could secure a highly desirable short term low fixed rate using their crypto loan to forward fund 2-5 years of interest on such a fixed rate mortgage.  This helps to mitigate risk in the event that the value of cryptocurrency falls drastically.  In such a scenario, if their coin drops to zero or becomes worthless, the borrower will have lost their crypto but will have 2-5 years to decide what to do with their property.

This mortgage is only available to clients whose income is greater than £300k per annum and have net assets exceeding £3m.

In addition, cryptocurrency loans can be used to buy luxury items and even to re-invest. Terms and rates are dependent on the size of the loan requested and the individual’s circumstances.

Example given for a $5m loan request

For those considering leveraging their crypto portfolio to raise finance, the following is an example of a loan request:

Image of How the super-rich use crypto to secure a mortgage article.

Loan value requested: $5,000,000

Avg. LTV: 40%

Terms & fees

Interest rate: 5% p.a.

Commitment fee: 1% p.a.

Term: 12 months

Total annual fee: $250,000 (5% interest rate) + $50,000 (1% commitment fee) = $300,000

Key benefits of securing a loan using cryptocurrency

Securing a loan using cryptocurrency has many benefits, particularly for those who need quick access to capital but where liquidity is a challenge, and those who don’t fit the standard lending criteria of most lenders.

Key benefits include:

1) Immediate liquidity

For those who hold substantial wealth in cryptocurrency, investment portfolios, property, art and other alternative investments, accessing actual fiat money can be time consuming and an administrative challenge. Using a crypto portfolio as collateral means easy access to liquid funds.

2) Quick process

The process is completed digitally so funds are available quickly should the borrower need the funds in a hurry. It’s a quick and flexible solution to meet your liquidity needs.

3) Investment portfolios remain untouched

With a traditional lombard loan, investment portfolios are used as collateral against the loan.  This can impact the value of the assets being held in the portfolio, particularly during a time when markets are rising and, in turn, the value of any assets held.  Using cryptocurrency to secure a loan, means that assets held in any investment portfolios will remain untouched and can potentially continue to grow in value.

4) Tax-efficient property purchases

Unlike a traditional mortgage, no deposit is required, so borrowers keep their coins, enabling them to avoid capital gains tax, which would be the case if they had to sell crypto coins for fiat money.

5) Specialist lending for non-traditional borrowers

When it comes to securing a mortgage, specifically, many super-rich individuals fall outside the standard lending criteria insisted upon by many traditional lenders.  Borrowing against a cryptocurrency portfolio means access to funds which could be used as part payment against a property, reducing the need for a mortgage. It can also be used as a bridging loan, if you need to move quickly to secure a property or asset.

Its important to point out that your capital is at risk as Crypto is unregulated in the UK and it’s value can go down as well as up.

Seek the services of a specialist adviser

Borrowing against cryptocurrency is a niche way of securing capital. Therefore, any wealthy individuals looking to do so should consult the services of a specialist adviser, who has knowledge and experience of leveraging personal wealth to raise capital.  The advisers relationships with specialist lenders means that they will be able to seek out the most competitive rates with favourable terms bespoke to that individual’s personal circumstances.

The value of cryptocurrency can fluctuate and may fall.  Lenders have processes in place to react should this happen. It is always recommended to speak to a specialist adviser, such as largemortgageloans.com, who will be able to talk you through this.

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Your home or property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Changes in the exchange rate may increase the sterling equivalent of your debt. You may have to pay an early repayment charge to your existing lender if you remortgage. Think carefully before securing any other debts against your home.  

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