Crypto Mortgages
It seems as though cryptocurrency is here to stay and financial institutions are starting to think about how they can move with the times and keep up.
Bitcoin was the first cryptocurrency to be created in 2008 and since then the financial world has been taking notice. When it was first introduced, crypto was primarily used for making private transfers and, in some cases, buying illicit goods online. However, more companies are accepting cryptocurrency payments and are gaining popularity. Crypto investments are also a very popular option.
How Do Cryptocurrencies Work?
Cryptocurrencies are completely digital money that use encryption techniques to verify transactions and regulate the creation of new coins. Because it isn't tied to any bank, government or other institution, cryptocurrency has a lot of benefits over traditional fiat money. For example, since all of the currencies rely on their respective blockchain technology, they aren't at risk for inflation or the manipulation that is inflicted on fiat currencies. Due to the encryption and the decentralized nature of cryptocurrencies, they are also much more difficult to steal than traditional money, as long as users take care to make sure their private accounts are secure.
A blockchain is a decentralized public ledger that tracks and executes transactions. Each transaction is stored as a 'block' of information on separate computers, known as nodes. So, instead of all of the information about transactions being stored in a centralized location by an institution like a bank, it is stored on computers across the world. All cryptocurrencies operate using a blockchain.
What Are The Benefits Of The Blockchain?
There are several key benefits of blockchains. Because it isn't controlled by a central authority, transactions made on the blockchain can't be easily tampered with or manipulated. The blockchain also makes transactions much faster and more secure, while at the same time eliminating the need for a third-party intermediary that may charge fees. It is also easier to verify transactions on the blockchain than with traditional banks. How Will The Bitcoin Mortgage Work?
Although some lenders claim to offer a Bitcoin mortgage, this is not actually the case. They may allow borrowers to pledge crypto, but this is a margin loan (or securitized loan) and not an actual loan. Currently, a mortgage where the loan itself is in cryptocurrency and the property is purchased with crypto does not exist and could prove to be difficult to create. Although UWM used to offer a mortgage where borrowers can make payments in Bitcoin, the actual loan is still in dollars (fiat) and the amount paid in Bitcoin is relative to their equivalent value in dollars. Keep in mind, the sale of Bitcoin is considered property by the IRS, therefore you may be taxed on any gains, so be careful when doing so.
In the future, as crypto becomes more recognized as a legitimate currency, we may see more homeowners willing to sell their properties for Bitcoin and other cryptocurrencies, as there are only a few cases where these transactions have occurred. Mortgage providers could start offering mortgages that are entirely crypto-based if set up properly, but would need the support, ecosystem and the risks to be ideal.
In the future, there is also the potential for the blockchain to be used to make the mortgage process faster and more secure. All parties could publish the relevant information on a private blockchain, which means the access to all loan conditions will forever be in stone. Even lenders that do not accept crypto as a payment option may still use the blockchain to manage the mortgage application process. Both the lender and borrower could use a smart contract and possible use of public keys to write a contract that binds both of them into making payments.
In the future, lenders may also use cryptocurrency such as Ethereum's Smart Contracts in order to create self-enforcing contracts that remove third parties from the process. Each step of the process will be executed automatically when the necessary requirements are met, making things much faster. This will also reduce administrative costs, making it cheaper for consumers to purchase properties. There may also be an ability to calculate payoff of mortgage to an exact date and time.
The long-term impact that cryptocurrency will have on the mortgage industry is still not known. However, more lenders are in the process of developing their own Bitcoin mortgage and exploring how the blockchain could be used to streamline the process. In the future, it is very likely that cryptocurrencies and blockchains will be central to the way that people purchase property.
The blockchain is the underlying technology that allows digital to generally be securely traded between two parties. The blockchain uses cryptography to secure information packaged into blocks which are then linked together in a chain of transactions. This allows these assets to be quickly transferred around the globe using a decentralized network through computers or smartphones without requiring an intermediary such as a bank or payment processor.
The blockchain was first developed by ‘Satoshi Nakamoto’, and released to the public in 2009 as part of crypto , where it is used to verify pending transactions on the network. By using cryptography to link each block containing transaction data to all previous blocks, this process creates an accurate ledger of all previous transactions and prevents a person from spending the cryptocurrency twice.
Smart contracts are one of the most groundbreaking aspects of blockchain technology. The basic concept is that contracts can be stored on the blockchain and automatically executed when certain conditions are met, eliminating the need for centralized authorities or middlemen.
Although it continues to be used for new crypto, the blockchain can also be used to streamline the process of getting a mortgage quote, process and potentially approving loans.
How Blockchain Can Be Used In The Crypto Mortgage Process
Blockchain technology could be used by lenders to automate mortgage-related tasks and further reduce the costs of issuing a new loan. For example, when you apply for a loan, all of the information about your credit score and your income etc can be accessed instantly. Smart contracts can be created to automatically approve loans and release the funds as soon as all of the requirements are met. This means that there is no need to process paperwork and communicate between multiple third parties, meaning that the entire process is streamlined. During the financial crisis paperwork was lost, confusion set in at times regarding if the lender owned the property or not, as documents went missing, etc, however on a blockchain this becomes more difficult to lose documents. Mortgages on the blockchain can also help aid in fighting loan discrimination, as well as creating a pathway from the materials used to build homes, to the builder, to the loan originator and real estate agent, the lender to the servicer, the servicer to the investment firm, to the bondholder. It also helps with situations such as in the mid 2005 or so era when drywall became toxic and people became ill due to this. Having the materials on a blockchain could help aid in figuring out which homes may be affected. It also could help aid in insurance claims, as one might be able to view any and all claims on a property before they purchase it, or more serious issues such as sinkholes, fires, flooding etc. If the collateral mortgage/debt obligation were to go into foreclosure, one might be able to view the history of the mortgage and parcel to see where the issues might lay, such as fraud, perils, or other potential situations.
Lenders could take advantage of the disintermediation afforded by blockchain technology, as there are no or minimal fees when transactions occur between nodes on a network. Therefore, making payments would not require an intermediary like a correspondent bank, and would be more secure since the payments are verified by a majority of nodes on the network.
What Are The Benefits Of The Blockchain?
Using the blockchain for mortgage quotes and loans could increase both the efficiency of the process as well as reduce costs.
Firstly, it would eliminate paper-based processes such as sending documents back and forth between different parties to verify information such as a borrower's income or credit score etc. It would also mean that there is no need to send out physical checks to borrowers, further eliminating costly delays in the process.
The transparency afforded by blockchain technology would also be of great benefit when issuing mortgages and securing new loans. Since all records are stored on a ledger that is almost completely hack-proof, it should mean there are fewer errors when creating and processing mortgages.
By having an unbiased opinion of a mortgage quote, where one might be able to obtain quotes on a website without putting any potential discriminatory behavior could help prevent unfair treatment, or at least the thought of it.
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Non-fungible Tokens Will Become Part of Real Estate