A Mortgage Investment Corporation (MIC) is an investment fund where investors pool their money to lend to borrowers as private mortgages. By adding their money to this pool, an investor purchases shares in a MIC. This is an alternative fixed-income investment: a security which pays investors fixed amounts on predetermined dates. Most MICs then supplement the pool of shareholder funds by borrowing money from banks in the form of loans, though the precise arrangement varies from MIC to MIC.
This combination of shareholder funds and bank loans is then lent by the MIC to borrowers in turn. Collectively, the agreements of these borrowers to repay the MIC, together with the real estate that serves as these agreements’ collateral, compose the MIC’s mortgage portfolio. When the borrowers make their mortgage payments, any associated fees and interest are cycled back into the fund. This allows the MIC to pay shareholders their dividends, and if the MIC was themselves a borrower, the banks their interest.
Regulatory Requirements
MICs are subject to regulatory requirements and oversight, ensuring compliance with securities laws and investor protection. In Canada, MICs have been commonly used for real estate investment since 1985, when they were created as a result of Section 130.1 of the Income Tax Act. This federal statute allows investors to invest in a pool of mortgages.
In Ontario, the Ontario Securities Commission is the regulatory body responsible for the management and operation of MICs. The Income Tax Act requires mortgage investment corporations to distribute 100% of net income, as verified by independent audit, to shareholders by way of dividends. Typically, a Board of Directors also provides additional strategic oversight.
Choosing the Right MIC
Choosing which MIC is right for you is not as simple as who has the highest Return on Investment (ROI). It’s important for investors considering a MIC to carefully assess a corporation’s portfolio composition, track record, and mortgage underwriting process. To learn more, check out our “Selecting The Right Mortgage Investment Corporation” blog post. Make sure to assess your own overall risk profile before choosing to invest in a MIC. This could involve consulting with a financial advisor or professional to understand the specific details and risks associated with a particular company.
About Magenta
Since 1994, our goal at Magenta has been to empower our investors to build for their tomorrows and achieve peace of mind. Magenta has delivered our investors strong returns and reliable income while safeguarding capital by applying a risk-mitigated portfolio strategy. We hand-pick our portfolio of residential, primarily first mortgages located exclusively in carefully selected Ontario markets.
Investing with Magenta offers:
- Regular income
- Liquidity
- Flexibility
Our team of experts will work with you every step of the way to keep you informed and assist you with investment information so you can determine what best suits your needs.
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