There’s a reason why there’s so much buzz surrounding blockchain and cryptocurrency. For most of our lifetime, humans have been dependent on centralised custodians (banks, payment processors etc.) to carry out financial transactions. This reliance on third-party poses numerous disadvantages including high transaction fees, delayed transactions, and possible manipulation.
Blockchains allow virtually anyone to carry out trustless, peer-to-peer transactions without any of the aforementioned tailbacks. Using encryption protocols, transactions carried out are made immutable and verifiable thereby leaving no room for manipulation. The foremost invention of this technology, bitcoin served as the vehicle for this imminent new era of value transfer.
A decade down the lane, advancements in blockchain technology now makes it possible for individuals to receive loans, swap digital assets, insure properties, manage assets identities and trade derivatives without intermediaries. At the epicenter of these innovations is a fairly new phenomenon called Decentralised Finance (DeFi). The endless possibilities ushered in by DeFi through the elimination of financial custodians gives a hint that crypto mortgages could finally be on the horizon.
The Mortgage Market
Mortgage market activity is soaring at unprecedented rates along with the rising cost of properties. In 2019, more than 5,500 financial institutions reported data on 15.1 million applications according to a report. Another report highlights the increasing difficulty in accessing mortgages due to the high entry requirements demanded by financial institutions.
DeFi lending applications can help lower these entry barriers, one of which is the exorbitant fees charged by banks and other institutional lenders. To receive a mortgage, users incur expenses from mandatory fees like appraisal fee, home inspection fee, loan origination fee, credit report fee, title insurance fee and document preparation fee. Decentralised finance and blockchain-issued mortgage loans effectively eliminates these costs since transactions are peer-to-peer. Aside from the basic network fee, which is negligible, borrowers do not have to pay any fee to access crypto loans.
Financial institutions take about two-weeks or more to process mortgage applications. They vet applicants’ vital details including income and credit score before reaching a decision. Lending and borrowing on DeFi applications are instant, provided all conditions are satisfied. DeFi lending platforms are regulatory compliant, have analytics for fraud identification and are backed by cloud-based services. These features ensure that the digitally enabled mortgage contracts are processed and closed faster.
Crypto mortgages would also save potential users of the legal hassles associated with traditional financial institutions. This is due to the fact that blockchain-powered smart contracts are trustless and cannot be defaulted by any transacting party.
Mortgage issuance is just one of the numerous roles blockchain and cryptocurrency can play in the industry. Many lenders are beginning to embrace cryptocurrency payments for deposits on properties. Even banks, asset management companies and other financial institutions are introducing cryptocurrency service offerings to customers to meet with growing demand. It is therefore not difficult to envision a future where banks accept cryptocurrency down payments for mortgages.
Also, there’s already a slew of DeFi based borrowing and lending platforms, so it wouldn’t be surprising either to see any of them expand their services to include crypto mortgages.