Investing does not have to begin with unfamiliar language. The first step is understanding what you are buying and how it will generate income.

A Mortgage Investment Corporation, also known as MIC, gives investors access to a portfolio without requiring property purchase or lending directly.

What is a Mortgage Investment Corporation?

A MIC is a Canadian corporation that pools investor capital to invest in mortgages and must meet specific requirements under Canada’s Income Tax Act. 

How does a MIC work?

1. Investors purchase shares in the MIC.

   Their money is pooled with capital from other investors.

2. The MIC provides mortgage loans.

   These loans can be secured by residential, commercial or other qualifying Canadian real estate. 

3. Borrowers make payments.

   The borrowers pay interest and, depending on the loan, also make principal payments and pay certain fees. 

4. The MIC pays its operating and financing expenses.

   Costs include mortgage administration, management, professional services, and provisions for possible loan losses. Credit-loss provisions are accounting allowances that also affect reported income. They are not themselves cash payments.

5. The MIC distributes income to shareholders.
   

   Investors own these shares which means they receive income distributed as dividends.

The actual amount available for distribution depends on more than the interest rate charged to borrowers. 

Why would a borrower use a MIC?

Banks follow standardized lending requirements. Some borrowers may not fit those requirements.

For example, a borrower might:

• Be self-employed and have income that is difficult to document 
• Need short-term or bridge financing 
• Be repositioning a property 
• Have credit, income or property circumstances that require a more customized review 

A borrower unable to obtain a bank mortgage means that the MIC’s underwriting process is especially important.

How do MICs determine who qualifies?

To evaluate potential borrowers, a MIC’s management team reviews financial factors including all income, credit history, and assets such as bank accounts, real estate, or vehicles.

In addition, qualification depends on the MIC’s lending criteria, including documented repayment capacity, property valuation, mortgage priority, LTV and a realistic repayment plan. Property valuation may include an independent appraisal.

Where does an investor’s return come from?

Borrower interest and fees generate revenue for the MIC. After expenses, financing costs and credit-loss provisions, available income supports distributions to shareholders in accordance with the share terms and board decisions.

Reasons investors consider MICs

Income-focused investing

MICs offer access to mortgage-generated income through a professionally managed portfolio.

Access to a portfolio of mortgages

A diversified portfolio can help reduce the effect of a problem with a single borrower.

Exposure to private mortgage lending

A MIC allows investors to participate indirectly in mortgage lending without personally negotiating, documenting and servicing each loan.

Final thoughts

MICs can provide investors access to a professionally managed portfolio. Its income primarily comes from the interest and fees paid by borrowers.

Before investing, take time to understand what you own, how the MIC selects and monitors its loans, what your anticipated return might be, what fees are charged and how easily you can redeem your shares.

For information only; not an offer to sell securities or investment advice. MIC investments involve risk, including possible loss of capital, and are not guaranteed. Mortgage security does not guarantee recovery. Short mortgage terms do not ensure investor liquidity; redemptions are subject to the applicable share terms and restrictions. Investment availability is subject to eligibility and applicable securities laws. Review the relevant offering documents before investing.