What are Mortgage Investment Corporations?

Mortgage investment corporations (MICs) are pools of capital that invest in private mortgages in Canada (primarily residential mortgages). MICs are investments that offer individual investors direct exposure to the mortgage market in Canada.

The Canadian Income Tax Act governs MICs and mandates that they cannot retain earnings. This allows them to distribute all of their earnings to investors in the form of distributions. All of a MIC’s net profit from the mortgages flows through to the MIC’s investors in proportion to their amount invested. A MIC holds mortgages secured by real property, often in conjunction with other forms of security. Securities of a MIC can be qualified investments under the Income Tax Act for RDSPs, RRSPs, RRIFs, TFSAs, or RESPs.

Risks of Investing in MICs

  • When interest rates are low, MICs may lend money on riskier mortgages to maintain higher returns (e.g. taking on second or third mortgages or making unsecured loans). This could expose investors to the risk of not earning returns or not recovering their investment.
  • Some MICs make development or construction loans based on what the MIC believes the property will be worth on completion. If these assumptions are unrealistic, investors may not recover their initial investments.
  • MICs rely on valuators to determine a property’s value. Valuators use different techniques and if the valuator is not properly qualified, investors face the risk that the value of the property and the underlying security for the loan may be overstated.
  • The composition of the mortgages in a MIC, other than residential mortgages, may pose unforeseen risks to investors. For example, mezzanine and construction lending pose significantly higher risk than loans on residential property.
  • Loan to value ratio represents the borrowed amount as a percentage of the value of the real estate. There are no regulations that a MIC must maintain a particular loan-to-value ratio. Investors may face the risk that a MIC understates or does not understand the loan-to-value ratio in relation to a mortgage.
  • MICs charge fees and incur operational expenses. Their fees may include management fees and loan origination fees. Investors should understand these fees and the extent to which those fees impact their investments. It’s good practice to review financial statements to assess operational expenses before committing to the MIC investment.
  • MIC investments are not always liquid and can be difficult to redeem. It’s important to understand that MICs may only permit redemptions if they have sufficient liquidity to do so. Make sure that the liquidity and redemption rules fit your personal circumstances.

How to Make an Informed Investment Decision

Consult with a person who is not participating in the lending transaction, such as a registered investment advisor, lawyer, or accountant before making the decision to participate in the investment.

Ask these questions to help yourself make an informed investment decision:

  • Can I get my money back if I need it in an emergency?
  • Can I see the redemption history for the past two years?
  • How much money does the company owe to people seeking to redeem?
  • Has the company diversified its investment portfolio in terms of types of loans, types of properties, and location of properties?
  • Can I see the company’s mortgage or property portfolio schedule?
  • Can I see the valuation reports, including the supporting assumptions?

For more information on investing in real estate, visit our Private Real Estate Investing page.

If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Inquiries at 604-899-6854 or 1-800-373-6393 or through e-mail at [email protected]. You can also file a complaint or submit a tip anonymously using BCSC’s online complaint form.

InvestRight.org is the BCSC’s investor education website. Subscribe to receive email updates from BCSC InvestRight.

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