Mortgage Investment Corporation – Definition, Benefit & How to Invest

Mortgage Investment Corporation! Do you need to make investments in the actual estate market at the same time as attaining constant and solid yields? A Mortgage Investment Corporation (MIC) is one passive funding vehicle many savvy investors upload to their portfolio for funding in the Canadian housing market while not having to make investments in huge amounts.

Mortgage Investment Corporations (MICs) are pooled funds that invest in non-public mortgages on behalf of shareholders. They are one of the simplest approaches for investors to benefit from direct publicity in the non-public mortgage market.

Should I invest in MIC? What is Canadian Mortgage Investment Corporation? What is a MIC Canada?What is a MIC company?

Here you will be enlightened on the benefits of investing in a mortgage investment corporation, what a mortgage investment corporation means, and a whole lot of important updates on MIC.

What is a Mortgage investment corporation?

mortgage investment corporation or MIC is an investment and lending company designed specifically for mortgage lending (primarily residential mortgage lending) in Canada.

The MIC’s management is responsible for all aspects of the company’s operations, including the sourcing of suitable mortgage investments, the analysis of mortgage applications, and the negotiation of applicable interest rates, terms and conditions, instruction of solicitors, mortgage portfolio, and general administration. Like an investment fund, the Mortgage Investment Corporation’s manager is paid a management fee, typically calculated as a percentage of assets under administration.

Mortgage investment corporations do not pay income tax given their corporate structure, which allows them to distribute all of their earnings to investors in the form of distributions. In fact, the portion of the Income Tax Act, which governs MICs mandates, states that they cannot retain any earnings.

MICs usually hold the vast majority of their assets in high-yield, uninsured residential mortgages, although the rules permit them to hold up to 25% in physical real estate itself. Unlike banks, these pools of capital are generally lending for much shorter terms, with 6 to 24 months being standard.

Benefits of investing in a mortgage investment corporation (MIC)

Here are a few key reasons why savvy investors are currently investing in MICs:

  • Putting money in a MIC can be a secure way of growing your income or capital. With this vehicle, real assets are used to secure mortgages while other assets (i.e. insurance policies and personal guarantees) are used to provide additional protection.
  • Access firsthand information and knowledge from industry experts with a solid background in mortgage lending. Their extensive experiences with different investment scenarios allow them to make qualified decisions that help diversify and strengthen your mortgage investment portfolio.
  • When placing your funds in a broad pool of mortgages you leverage the power of diversification, resulting in managed capital risk while maximizing your returns. With the goal of growing your money, the MIC efficiently manages each mortgage plan for higher returns.
  • The MIC enjoys a preferential tax treatment under the Income Tax Act of Canada with cash inflows and capital gains being tax-free. This is beneficial to shareholders because it prevents double taxation especially when a company receives interest on income.

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 is 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.

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Who do Mortgage investment corporations lend to

Mortgage investment corporations lend money to people who would or have been turned down by more traditional outlets like banks, credit unions, or large alternative lenders. As such, they are able to charge significantly higher interest rates on their mortgages (in some cases in excess of 10%). With the hot housing markets in areas such as the GTA and Vancouver, many borrowers have sought money from MICs to purchase homes or bridge gaps in funding.

Should you invest in Mortgage investment corporations?

MICs are good at providing yield and fit nicely into the fixed income component of your investment portfolio alongside other typical asset classes focused on safety, growth, and depending on risk tolerance, more aggressive, speculative growth.24

Mortgage Investment Corporation (MIC) provides a way to invest in the real estate market, mitigating the time and risk of investing in individual mortgages. Investors pool their money by buying shares in a MIC, creating an alternative fixed-income investment. MICs are special companies created by virtue of Section 130.1 of the Income Tax Act, a federal statute, to enable investors to invest in a pool of mortgages.

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