Better’s Bitcoin Mortgage May Give the Lender Years of Control Over Borrowers’ Crypto

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Better Mortgage is offering home-buyers a way to fund a down payment without selling their Bitcoin. Newly disclosed terms show that borrowers may give up practical control of that crypto. The loss can last for years after the down-payment loan itself ends.

Under Better’s Bitcoin-backed mortgage, the lender may reuse pledged Bitcoin. The pledged Bitcoin can stay tied to the main home loan until the borrower repays or refinances it. That changes the risk calculation. Borrowers keep exposure to Bitcoin’s price, but they may lose access to the asset for years.

Keeping Bitcoin does not mean keeping control

The lender built the product around a simple appeal. A buyer who holds Bitcoin can use it to support a home purchase without first converting the asset into cash.

At closing, the borrower receives two loans. The home secures the first loan, a conventional mortgage. Bitcoin and a second claim on the property secure the other loan, which funds the down payment.

Borrowers must pledge $2.50 in Bitcoin for every $1 borrowed through the down-payment loan. The crypto moves from the borrower’s Coinbase account into Better’s custody account at Coinbase Prime.

The buyer still benefits if Bitcoin rises in value. But the buyer no longer has the same freedom to move, sell or otherwise use the pledged coins.

>>> Read more: Coinbase Rolls Out USDC Loans Backed by Staked Ethereum

Better may reuse the pledged Bitcoin

The more unusual term covers what Better can do once it takes custody of the collateral.

Better told CoinDesk that it may rehypothecate the Bitcoin, meaning the lender can use pledged coins in another transaction. It promises to maintain an equivalent amount for eventual repayment, so the borrower depends on Better’s ability to make good. The collateral might not return for years or even decades.

Better said its agreements and custody structure comply with applicable laws, including insolvency rules. The company did not explain, according to CoinDesk, whether individual borrowers’ Bitcoin stays separately identifiable after reuse. It left unanswered what legal claim customers would have if Better or a financing partner failed.

The stakes on those questions grow when the underlying relationship can last 15 or 30 years.

No margin calls only address one type of risk

Bitcoin price declines alone do not trigger margin calls. Borrowers do not have to add collateral when the price falls. A price drop by itself does not cause an automatic sale.

Missed payments work differently. If a borrower becomes delinquent, Better may sell pledged Bitcoin after 60 days, following notice. Better says it would sell only enough to repay the debt and bring the account current.

Price declines are not the only risk borrowers carry. Liquidity risk and exposure to Better as a counterparty remain. Missed payments can still trigger a sale of the collateral.

>>> Read more: Newrez to Factor Crypto Assets Into Mortgage Qualification

Paying off the down-payment loan may not unlock the Bitcoin

Borrowers might expect that repaying the crypto-backed portion of the financing would return their Bitcoin. Better’s newer written response indicates otherwise.

The pledged Bitcoin can remain locked until the borrower fully repays or refinances the main mortgage. Paying off the separate down-payment loan early does not change that. A home sale requires the borrower to settle the down-payment loan before Better releases the collateral. For someone with a long-term mortgage, a down-payment tool can turn into a multi-year commitment of crypto assets.

Better hasn’t said what happens to an individual borrower’s Bitcoin if the company or a financing partner runs into trouble. It’s unclear whether that borrower would have a claim on specific coins, or just a claim in line behind everyone else.