Do you want to invest in the real estate market while achieving consistent and stable yields? A Mortgage Investment Corporation (MIC) is one passive investment vehicle many savvy investors add to their portfolio for an investment into the Canadian housing market without having to invest large amounts.
While the major players in the mortgage lending industry are credit unions and major financial institutions, an alternative source of mortgage lending has been consistently on the rise over the past decade—MICs.
A Mortgage Investment Corporation is an investment company created and designed for mortgage lending and provide investors with a way to tap into the real estate market while mitigating the time and risks investing in an individual mortgage entails.
It’s an excellent avenue for investment-pooling, because it enables their shareholders to invest and diversify their portfolio collectively.
Mortgage Investment Corporations started in 1973 as part of the Residential Mortgage Financing Act. MICs saw a boost as early as 1981 when Parliament estimated that more than $5 billion is required in mortgage financing to keep pace with the rapid population growth across the country and the resulting financing needs.
Due to this projection, Parliament looked for a way to address the annually projected gap of $2.3 billion and supported MICs to increase mortgage funds to finance the construction of new homes by accessing the accumulated wealth of the small investors and pension funds.
MICs made it easier for small investors to participate in the residential and commercial real estate markets. MICs typically provide short-term loans ranging from 6 to 36 months secured by the real estate in Canada.
There are various reasons as to why mortgage borrowers look into opting for MICs rather than traditional banks.
For one, MICs do not conform to the rigid and strict guidelines often imposed by financial institutions when it comes to approving loans. They also provide more flexible terms with borrowers while being able to fund loans in as little as fast as 24 hours, depending on the complexity of the loan proposal.
Borrowers thereby feel more at ease with the quick funding turnaround and the less rigid mortgage qualification guidelines. In this regard, MICs open a gateway opportunity to be able to charge interest rates that are typically above market rates.
A MIC is governed by Section 130.1 of the Income Tax Act, and to maintain its status, MICs should be able to comply with several rules. Some of these key regulations include:
The allure of investing in a MIC for investors is mainly driven by the fact that it typically produces an attractive risk-adjusted yield, and is secured by real estate underlying the debt.
A MIC essentially allows the public to act as the bank with real estate at the underlying security and realizing the investment return through diversification.
Here are a few key reasons why savvy investors are currently investing in MICs:
Another notable benefit of participating in a MIC investment is the ability to utilize your RRSP funds to invest in a MIC fund directly. The income earned by your RRSP investments are tax-free.
As a result, the tax-free interest earned from a MIC held in your RRSP can compound tax-free and you don’t have to worry about paying taxes on your profits until you withdraw them from your RRSP.
The MIC’s management is responsible for all facets of the MICs operations: sourcing of mortgage opportunities; analysis and underwriting of mortgages; structuring and facilitating the related legal transactions. The MIC then manages and administers the entire mortgage portfolio comprised of these individual mortgage investments.
Taking into consideration the risks and benefits involved, MICs are an effective alternative investment tool for Canadian investors providing consistent monthly payments derived from a pool of diversified investments.
Here are the net yields the CMI MIC has provided to investors over the years.
Besides providing alternate ventures for investors, MICs also offer attractive mortgage plans for buyers who are looking for a new place to call home. Amidst the backdrop of tightening regulations and higher interest rates, borrowers are increasingly looking for alternatives, like MICs, to solve their lending problems.
Are you up for an investment-worthy venture? Contact the Canadian Mortgages Inc. today.