What are Mortgage Investment Corporations (MICs)?

A Mortgage Investment Corporation (MIC) is an investment company designed specifically for mortgage investing in Canada. Owning shares in a MIC enables investors to invest in a diversified and secured pool of mortgages. Profits generated by MICs are distributed to investors according to their share ownership. The mortgages are secured on real property, often in conjunction with other forms of security, such as personal and corporate guarantees, general security agreements and assignments of material contracts, such as insurance policies.

How are MIC distributions taxed?

Generally speaking, MIC distributions are tax deductible at the company level and taxed as investment income at the investor level if the investment is a cash investment. MIC distributions received on investments held through a RRSP, RRIF, TFSA, RESP, LIRA, or DPSP are taxed according to the tax laws governing those types of investment vehicles. Nevertheless, the above tax treatment may not apply to all investors and tax treatment is always dependent on the individual investor’s circumstances. You should consult with your own tax advisor regarding the income tax consequences to you of an investment in a MIC.

What are the general risks to me?

There are a number of risks for you to consider before investing in a mortgage investment including but not limited to:

a) The value of real estate held as security for the MIC’s mortgage investment may be affected by general economic conditions, cost overruns, fluctuating demand for housing or commercial premises, variation in occupancy rates, operating expenses and various other factors.

b) Distributions by the MICs may be adversely affected if:

A significant number of borrowers are unable to pay their obligations or substantial costs are required to protect investments in default scenarios.

Idle funds are not able to be invested in new mortgages on economically favorable terms.

The mortgage portfolio becomes concentrated by type of security, industry or geography.

Should I invest in a MIC?

There are many factors to consider when deciding to invest in a particular company’s product(s). A short list of factors to consider might include:

1) track record;
2) size;
3) relative experience and depth of management;
4) requisite specialized skill set(s);
5) professional and industry memberships;
6) local market knowledge;
7) processes and systems;  and
8) company culture.

How you rank these factors in importance, and how these corporations answer these questions when asked by you will determine which company and mortgage investment provider are best for you and your investment portfolio.