Bitcoins and Mortgage - Do they Mix?
There are many places where you can spend your bitcoins.
From shopping online at Overstock.com to buying Subway sandwiches, there is an ever growing number of vendors that will be happy for you to open your bitcoin wallet. Given that more and more retailers are accepting the cryptocurrency, it is understandable that people are wondering if they can pay their mortgage with bitcoins.
Let’s take a closer a look at whether or not this is possible.
The Volatility Problem
The excitement behind Bitcoin is also its biggest hurdle towards becoming an acceptable form of currency for real estate transactions.
According to data from the Blockchain.info, the market price of a bitcoin was $459.67 in April 6, 2014. The day before, it was $451.84 and on the day after, $447.74. Given the high price volatility of bitcoin, it is unlikely that any financial institution would be willing to use bitcoins to value a mortgage.
- Imagine that your borrow $200,000 to your home and your mortgage is set at an exchange rate of $400 per $1, valuing your mortgage at 500 bitcoins.
- If the market value of a bitcoin suddenly swings to $500, then you would owe your bank $250,000. Not such a good idea anymore, right? Depending on your financial situation, you may have to even default on your loan.
- If the market value drops to $300, then you are in luck and you now owe only $150,000. What bank is going to agree that?
Until the price of a bitcoin is much more stable, it is highly improbable that mortgages will be issued in bitcoins. Just how stable does bitcoin need to be? Well, gold and silver have been around for centuries and they are still not used to issue mortgages.
The Possibility: Using a Bitcoin Payment Processor
The only possibility to overcome the high price volatility from bitcoin would be to use a bitcoin payment processor. This is a quick summary of how the process would work:
- You sign up for the service and provide your mortgage payment information.
- You schedule your monthly payments or do one-time payments every time using your bitcoin wallet.
- The bitcoin payment processor mails out checks to your creditors. The company charges you at the exchange rate of the day.
- The bitcoin payment processor charges you a convenience fee for every payment.
This could work in theory and it actually did for a while. BillPayForCoins.com processed a wide variety of payments and rumors are that they may have even processed a couple mortgage payments. Best part: the service charged no fees for payments less than $8,000.
Unfortunately, BillPayForCoins.com closed in December 2013. There are other crypto currency payment processors, such as Bitpay and Coinbase, but neither one processes mortgage payments.
Summary: Can I Pay My Mortgage in Bitcoins?
The answer is no, for now.
Unless the remaining bitcoin payment processors are able to secure deals with mortgage lenders, you only have one option to pay your mortgage with bitcoins. Exchange your bitcoins for dollars, deposit those dollars in your bank account, and pay your lender as you normally do.
Even if things change and you can pay your mortgage with bitcoins, be sure to pay attention to the tax reporting requirements the IRS issued about bitcoins.