Three reasons to consider investing in a MIC

What exactly is an MIC?

Mortgage Investment Corporations (MICs) are pools of funds that invest in residential mortgages on behalf of their stakeholders. They are one of the simplest methods for Canadian investors to acquire exposure to the private mortgage market. A mortgage investment corporation (MIC) is structured similarly to a mutual fund or exchange-traded fund, but instead of stocks and bonds as underlying assets, the MIC is made up of a pool of carefully selected mortgages that generate revenue through interest and fees charged to borrowers. MICs are good at making money and fit well in the fixed income part of an investor's portfolio, along with other common asset classes.

Three reasons to consider investing in a MIC

They are an excellent alternative for many Canadians.

Mortgage investment Corporations offer money to individuals who have been denied by banks, credit unions, or even other major alternative lenders. As a result, they can demand much higher mortgage interest rates (in some cases in excess of 10%). Due to the booming housing markets in locations such as the Greater Toronto Area (GTA) and Vancouver, numerous borrowers have opted to use MICs in order to acquire properties or close funding gaps. To comprehend the appeal of MICs, it is sufficient to examine other fixed-income assets. In the present day, it is difficult to find a GIC with a one-year term that pays even 2%. Even the 10-year maturity of government bonds gives equally low rates. Investment-grade corporate debt does pay a higher interest rate, but even with these bonds, 4 to 4.5 percent is essentially the limit in Canada today.

?The investment risk is significantly reduced.

When you invest in a MIC, you are purchasing stakes in a broadly diverse portfolio of mortgages, which dramatically decreases risk. Could you invest in a rental property or a mortgage on your own? Yes, but you'd have to put in a lot more effort (both time and money) and risk a lot more money if the borrower defaults. People prefer to pay their mortgages regardless of the business cycle, especially when they reside in the house. Thus, MICs have a "natural" buffer. A MIC will not necessarily lose money if property values decrease if the economy is facing a recession.

As private MICs are not tied to the stock market, fluctuations in the TSX or S & P 500 will have no influence on your mortgage investments. Despite the fact that real estate investing is riskier than other fixed-income investments such as government securities, mortgage investment corporations have built-in safety nets. Dealing in low-lending-ratio mortgages and buying homes in cities that are in high demand are two examples.

?Developing a sustainable portfolio

You can sit back and watch your investment increase once you've bought shares in the MIC. The MIC will provide you with frequent updates on how your investment is going and will pay out dividends according to a specified schedule.The trends seen in well-managed MICs are much more focused on risk management than on seeking higher returns. Successful MICs will establish a robust mortgage portfolio with higher quality assets using effective risk management procedures and an experienced manager, resulting in more value for investors. Structured due diligence can assist in decreasing default risk and guaranteeing appropriate capital flow in the real estate market. Strategic investors should always look at how the MIC's underlying portfolio is affected by these changes. This will help them improve their investment portfolio.