What is a Mortgage Investment Corporation (MIC)?
A Mortgage Investment Corporation (MIC) is a uniquely Canadian investment vehicle that offers a compelling opportunity for investors and a flexible lending option for borrowers. Governed by Section 130.1 of the Income Tax Act, MICs pool funds from multiple investors to provide mortgages, often catering to borrowers who may not qualify for traditional financing. Here’s an in-depth look at how MICs work and why they’re beneficial.
How MICs Operate
Investors buy shares of a MIC, pooling their money into a common fund. This pooled capital is then used to fund mortgages. The income generated from these mortgages—through interest and fees paid by borrowers—is distributed as dividends to investors. By law, a MIC is a flow-through investment, meaning it must distribute 100% of its net income to investors, avoiding corporate taxation.
Key Features of a MIC
Diversified Mortgage Portfolio: MICs typically invest in a range of mortgages, often focusing on residential properties, but they may also include some commercial or construction loans.
Flexible Lending: Borrowers often turn to MICs for short-term or non-traditional financing needs, such as bridge loans, construction loans, or refinancing for properties that don’t meet conventional lending criteria.
Regular Dividends: Investors receive predictable income, typically on a monthly or quarterly basis, derived from the interest and fees earned on the mortgage portfolio.
Tax-Deferred Accounts: Shares in a MIC can often be held in tax-advantaged accounts like RRSPs, TFSAs, or RESPs, making them an attractive option for long-term investors.
Legal and Structural Requirements
Portfolio Composition: At least 50% of a MIC’s assets must be in residential mortgages or cash/cash equivalents.
Development Limits: No more than 25% of assets can be allocated to real estate development or construction projects.
Flow-Through Income: MICs must distribute all net income to investors annually.
Benefits for Investors
Consistent Income: MICs provide a steady stream of income through regular dividends, often appealing to income-focused investors.
Tax Efficiency: Income is taxed in the hands of investors rather than the MIC, creating a pass-through advantage.
Lower Volatility: Unlike stocks, MIC investments are tied to the real estate market and are generally less volatile.
Accessibility: MICs allow individuals to invest in real estate-backed mortgages without directly owning property.
Why Borrowers Use MICs
Borrowers choose MICs because they offer:
Faster Approvals: MICs often provide quicker turnaround times than traditional banks.
Flexible Lending Terms: Borrowers with unique financial situations or unconventional properties can secure financing.
Short-Term Financing Solutions: MICs excel at providing bridge loans, construction financing, and other short-term needs.
Summary
In essence, a MIC is a win-win:
For investors, it’s a way to earn steady income backed by the security of real estate.
For borrowers, it’s an alternative source of financing with flexibility and speed.
In early 2025, Keystone Mortgage Investment Corporation (Keystone MIC) will go live and be open to private investors. If you have interest in learning more about the investment opportunity, please reach out to Neal (neal@keycap.ca) and he will connect you with our Exempt Market Dealer.
