Canada’s economic landscape is marked by significant uncertainty in 2025, primarily due to escalating trade tensions with the United States. According to the Bank of Canada (BoC), “the threat of tariffs is causing major uncertainty,” impacting everything from consumer and business confidence to investment decisions. The trade war threat has led to a sharp depreciation of the Canadian dollar, which has adversely affected investor confidence.
In response to these challenges, Canadian investors are increasingly turning to alternative investments to diversify their portfolios and mitigate risks associated with traditional markets. Alternative investments in the private credit and private equity markets offer opportunities that are less correlated with public markets, providing the potential for higher returns and reduced volatility.
Mortgage Investment Corporations (MICs) have emerged as one of the fastest-growing alternative asset classes in Canada. Historically, MICs have provided significantly higher yields than traditional fixed-income securities while offering exposure to Canada’s robust mortgage market. Many investors are unaware that MICs can be incorporated into Registered Retirement Savings Plans (RRSPs), where they can be used for compound growth in a tax-deferred account.
Understanding MICs as a Diversified Investment Vehicle
A Mortgage Investment Corporation is an investment vehicle that pools investor funds to provide loans secured by residential real estate. Typically, MICs extend financing to borrowers who need short-term mortgage loans (12 months, on average). For borrowers, private mortgages provide more flexible lending terms and faster approvals.
MICs generate returns by collecting interest and fees from borrowers, which are then distributed to shareholders of the fund. MIC investors benefit from regular income and higher yields, portfolio diversification and lower market correlation with traditional assets like stocks and bonds. When invested in an RRSP, MICs also provide tax-efficient income, allowing investors to compound returns until retirement.
MICs are run by experienced mortgage professionals who conduct rigorous due diligence and provide ongoing monitoring and active portfolio management to mitigate risk, optimize returns, and support the long-term stability of mortgage investments.. Mortgages are selected based on various criteria, including security position, borrower profile, loan-to-value (LTV) ratio, geographic location and local housing market conditions.
Professional management allows investors to benefit from mortgage lending without the responsibility of managing individual loans. By employing prudent lending practices, portfolio diversification, and strategic risk management, MICs can enhance portfolio resilience and thrive even in uncertain economic conditions.
Strategic Approaches to MIC Investing
Private mortgage investing through a MIC can help investors balance growth and capital preservation as part of a long-term investment strategy. Investors benefit from the expertise of a professional team of mortgage experts who actively analyze real estate market trends and economic conditions, enabling them to detect and respond to market shifts. This proactive approach helps optimize investor allocations using real-time data and insights that go beyond publicly available information—providing MIC investors with a strategic advantage in navigating evolving market conditions.
The most reputable mortgage investment providers employ strategic investment approaches to maximize investors’ returns while mitigating risks. This includes rigorous loan selection and underwriting to assess borrower creditworthiness, spreading loans across different provinces and cities and types of mortgages, and adjusting interest rates based on borrowers’ risk profile and loan length.
Leading MIC fund providers also conduct stress tests to evaluate how their portfolios would perform under various economic scenarios. The stress test helps mortgage experts analyze how changing interest rates affect a borrower’s repayment ability. Stress testing also helps ensure that loans are priced appropriately to maintain investor yields while minimizing default risks.
The leading mortgage investment providers also leverage technology to track market value trends, delinquency and default rates, average LTV ratios of their portfolios and geographic performance of their loans. This not only ensures informed and timely decision-making but also enables proactive risk management, strategic portfolio adjustments, and optimal overall performance for investors.
Integrating MICs within an RRSP Framework
MICs are qualified investments for RRSPs, which means investors can easily integrate them into their retirement portfolios. This can be done by opening a self-directed RRSP account and selecting a qualified MIC fund.. Alternatively, investors can also invest through a financial advisor, who can help navigate the selection process and ensure the investment aligns with the individual’s goals. The portion of an investor’s portfolio allocated to mortgage investments depends on their financial goals, risk tolerance, and overall investment strategy. It’s best to consult with a financial advisor to determine the appropriate allocation based on the investor’s specific financial situation and objectives.
The biggest benefit of holding a MIC in an RRSP is tax-deferred growth and reinvestment potential. Inside an RRSP, MIC dividends grow tax-free until withdrawal, allowing investors to compound their returns over many years and even decades. This strategy greatly reduces the immediate tax burden and maximizes long-term wealth accumulation, especially as part of a Dividend Reinvestment Plan (DRIP). A DRIP allows investors to automatically reinvest their regular dividends into additional shares of the MIC fund.
To fully maximize their tax benefits, investors should plan their MIC allocations ahead of RRSP deadlines. The annual RRSP contribution limit for 2025 is 18% of earned income in the 2024 tax year, up to a maximum of $32,490. Additionally, unused RRSP contribution room from previous years can be carried forward and added to the current year’s limit. Investors with contribution room may want to consider a lump-sum deposit before the annual contribution deadline, which is March 3, 2025, for the 2024 tax year. Maximizing RRSP contributions helps reduce taxable income.
Of course, investors are only allocating a portion of their RRSP contributions to mortgage investments. Again, how much you allocate depends on your risk tolerance, investment horizon and liquidity needs. This is why it’s important to balance liquidity needs and long-term investment goals when incorporating MICs and other assets into an RRSP portfolio.
Outlook and Adaptation Strategies
Mortgage Investment Corporations and other forms of private capital have become integral to Canada’s real estate financing landscape. According to the Canada Mortgage Housing Corporation (CMHC), MICs account for between 1% to 2% of all outstanding mortgage loans in Canada. For newly extended mortgages, this figure is as high as 8% as of 2023, according to CMHC data.
The assets managed by Canada’s top 25 MICs grew 3.9% year over year in the second quarter of 2024, surpassing the 3.5% growth in the overall residential mortgage market. This suggests that demand for private mortgage solutions continues to grow despite the Bank of Canada (BOC) embarking on multiple rate cuts since June 2024.
The BoC is cutting rates ahead of a “wall of mortgage renewals coming up” in 2025, according to Randall Bartlett, senior director of Canadian economics at Desjardins. Roughly $400 billion worth of mortgages are set for renewal this year. In this environment, MICs could experience higher demand from borrowers seeking alternative financing solutions during this period.
MIC providers with strong track records, robust risk management and proactive diversification strategies are poised to capitalize on the growing demand for private lending solutions.
Conclusion
Mortgage Investment Corporations provide investors with portfolio diversification, predictable returns and asset-backing not available in other asset classes. When included in an RRSP, MICs provide tax-efficient income, allowing investors to maximize returns while minimizing their tax bill.
To get started with MIC investing, it’s important to evaluate your risk tolerance, portfolio needs and RRSP contribution limits. Working with a professional MIC provider can help you navigate the complexity, ensuring your mortgage investment portfolio is managed effectively.
CMI Financial Group is one of Canada’s fastest growing non-bank financial institutions with more than $3 billion in successful mortgage placements and over $1 billion in assets under management. Our industry-leading CMI MIC Funds are professionally managed mortgage portfolios focused on providing predictable, attractive returns while emphasizing capital preservation.
The CMI MIC Prime Mortgage Fund is a more conservative fund that invests primarily in first mortgages with an average LTV ratio of 65%. It targets net annual returns of between 6% and 7%.
The CMI MIC High Yield Opportunity Fund is designed for investors with a slightly more aggressive risk profile, targeting net annual yields of between 10% and 11% across mortgages with higher LTV ratios.
The CMI MIC Balanced Mortgage Fund is a diversified mortgage fund designed for investors with a moderate risk tolerance. It targets net annual returns of between 8% and 9%. In a recent analyst report, Fundamental Research Corp., an independent equity research firm, highlighted the continued growth and strength of the Balanced Mortgage Fund, emphasizing that high-yielding funds, like CMI’s, are increasingly attractive in the declining rate environment, as MIC lending rates are more stable in fluctuating markets.
Although commissioned by CMI, this analyst report provides an independent assessment of CMI MIC Balanced Mortgage Fund. While the report reflects the analyst’s own views, we encourage readers to review the full disclaimers and disclosure section for more details.
To learn more about how CMI MIC Funds can be used in your RRSP account, contact one of our investment professionals for a consultation.
