Bitcoin was the first cryptocurrency to ever hit the market. Far from its humble beginnings in 2008, Bitcoin is now the world’s biggest cryptocurrency with a market cap of $1.3 trillion — which, according to Anadolu Agency, is bigger than the market cap of global leaders Tesla and Meta. Today, consumers can buy more things than ever with Bitcoin, as it continues to gain recognition and work its way towards mass adoption.
There are even talks about making Bitcoin payments a thing for mortgages. In fact, the nation’s second-largest mortgage lender, United Wholesale Mortgage, has recently announced that they’ll start accepting Bitcoin payments by the end of the year. This move isn’t completely unexpected since an increasing number of people are now using (and have shown interest) in Bitcoin. Wealthsimple notes that the appeal of Bitcoin stems from its convenience and accessibility, as cryptocurrency transactions have lower fees compared to bank or wire transfers. But despite the many perks that Bitcoin offers, is it wise to use this cryptocurrency to pay for your mortgage?
Understanding how Bitcoin mortgage payments work. Using Bitcoin to pay your mortgage isn’t as simple as sending a fixed amount of coins to your lender every month. For one, Bitcoin is highly volatile and its price changes quickly, making it impossible for your lender to set an exact value for your monthly payments. In addition, the federal laws surrounding cryptocurrencies aren’t well-established yet, so Bitcoin payments are subject to varying state regulations.
However, some mortgage lenders are now starting to recognize cryptocurrency as an asset. While this won’t allow you to pay directly using your crypto assets, it can help improve your chances at getting a mortgage with excellent terms. During the application process, you can list down your crypto assets, which then helps lenders determine your creditworthiness. Despite the high volatility that’s associated with Bitcoin, it can still add value to your credit reputation. It will most likely be viewed in the same lens as other asset classes like stocks, ETFs, or mutual funds.
If you have Bitcoin assets, you can also cash them out to cover your mortgage down payment. This practice is more common, but it does have a lot of major tax implications and stipulations that may make this complicated. In the event that your mortgage lender allows this, you’ll need to have a clean paper trail in order to prove that your bitcoin assets come from legal and legitimate sources. You may also be subject to exorbitant capital gains tax if you decide to cash out your Bitcoin assets.
The tax complications that come with Bitcoin
As we’ve mentioned, cashing out Bitcoin assets to pay for your mortgage will make them subject to high capital gains tax. This is because right now, the tax regulations surrounding cryptocurrency are still being figured out by legislators, so it is a bit of a gray area. Currently, the IRS considers cryptocurrency usage to be a potentially taxable event.
The recent tax proposal of President Joe Biden doesn’t seem promising for Bitcoin mortgage payments either. USA Today states that under his proposal, wealthy individuals earning more than $1 million may receive federal tax rates as high as 43.4%. This rate applies to assets that individuals hold in taxable accounts and sold after more than one year, which is usually the case for those who want their Bitcoin assets to amass growth.
It’s a bad idea to use Bitcoin to pay for your mortgage. Aside from being highly volatile, there are other risks that come with holding and paying with Bitcoin. You should only consider making Bitcoin mortgage payments once the technology fully allows for it and the tax regulations are set in stone. If you want to have an easier time paying your mortgage, be sure to read our list of ‘5 Clever Steps to Save Money on Your Mortgage’.