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Is It Worth Investing in an MIC?

24 September 2018

What is a MIC?

A mortgage investment corporation (MIC) is an organization handling mortgage applications and investments in Canada. It offers secured shares of diversified and qualified mortgage plans to investors that are based on the Income Tax Act of Canada. Likewise, it also lends money to borrowers in the form of mortgages.

How Does a MIC Work?

The MIC works by gathering a pool of investors and lending money in the form of mortgages. Therefore, investing in MICs is a smarter way of growing money.

The structure of a MIC is depicted below:

The MIC Process

The Corporation

The MIC gathers funds from investors who purchased shares of the corporation at a fixed dollar amount (e.g., $5 per share). It then the entity that lends the money to mortgage borrowers.

The Borrowers

Individuals who borrow from a MIC only receive the money after the approval of the mortgage. Afterward, the borrower pays monthly mortgage obligations, including the principal loan amount as well as the interest or the cost of the loan.

The Investors

By investing shares with the MIC, investors can grow their money. These shares are often designed for short-term or long-term investment periods. However, investors may opt for long-term periods for higher yields. Profit is gained from interest payments.

The Key Benefits of Investing in a MIC

The MIC provides security, customizable loans, and lower interest rates for home buyers who have been turned down by traditional financial institutions like banks, credit unions, and other alternative loan providers. Moreover, there is a high potential for growth when investing in a MIC. In fact, according to the PWC Canada, alternative investments will grow to $14 trillion by the year 2020 with a significant part of it coming from the mortgage and rest estate sectors.

Here are some key benefits of MIC:

Secured Pool of Investment Funds. Putting money in a MIC is a secure way of growing your funds. In this financial organization, real assets are used to secure mortgages while other assets (i.e. insurance policies and personal guarantees) are used to provide security.

A Network of Experts. Get 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 investment portfolios.

Diversified Investment Portfolio. In portfolio investment, you place your funds in a broad pool of mortgages. When you diversify, you manage your risk levels and maximize the returns. With the goal of growing your money, the MIC efficiently manages each mortgage plan for higher returns.

Tax Advantages. 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 interests on income.

What Risks Are Involved?

When investing, you should always know the pros and cons. And despite the many benefits of investing in a MIC, it also has a few limitations. Some potential risks that you need to be aware of are:

Uncertainty. The credit quality of individuals who seek out mortgage loans is never certain. However, a MIC will manage this risk by conducting a thorough background check on the borrower.

Fluctuations in the Housing Market. Housing price fluctuations may affect the values of properties used as loan collateral. Often, this decline has a negative impact on the MIC, and a few fail to recoup the funding necessary to secure the mortgage loan. In addition, market fluctuations may also affect profitability.

Risk and Return Rate. Higher potential for returns is associated with higher risks and uncertainty levels. However, the risk and return trade-off show that profits are higher if tolerance for risk is high.

The MIC is an Effective Alternative Investment Tool

Taking into consideration the risks and benefits involved, the MIC remains to be an effective alternative investment tool. By receiving monthly payments from borrowers, investors gain profit and receive capital gains. Not only that, a pool of diversified investments secure and maximize the rate of return.

Besides providing alternate ventures for investors, MICs also offer attractive mortgage plans for buyers who are looking for a new place to call home.

Are you up for an investment-worthy venture? Contact Canadian Mortgages, Inc. today.

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Contact us for more information on our MIC funds or to book an appointment with one of our Investment Professionals.

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