Want to invest in a mortgage pool? In recent years, low interest rates have prompted Canadian investors to become more interested in private mortgage pools formulated by renowned Mortgage Investment Corporations (MICs) in Abbotsford. These pools promise consistent returns with substantially greater ROI than standard fixed income investments.
If you are planning to become a mortgage investor, here are few things you need to know:
1. What are MICs?
MICs are mortgage pool funds that invest in residential mortgages in Canada. They allow private investors to obtain direct exposure to Canada’s mortgage industry. MICs make up the majority of private mortgage lenders in the country and are regulated by OFSI.
Mortgage investment corporations do not pay income taxes because of their corporate structure, which allows them to transfer all of their earnings to investors in the form of dividends. Unlike banks, these pools lend for considerably shorter maturities, ranging from 6 to 24 months.
2. Who do MICs lend to?
MICs lend money to people who would otherwise be rejected by traditional lenders such as banks, credit unions, or major alternative lenders. As a result, they can charge much higher mortgage interest rates, generally exceeding 10%.
3. Why Invest in an MIC?
MICs offer higher profits in a shorter time period as compared to banks and govt. bonds. Government bonds have equally low rates, even for 10-year durations.
4. What are Risks Involved in MICs?
First, with prime mortgage rates so low, paying around 10% per year points towards a subprime borrower.
Second, with property prices so high, the underlying collateral for these private mortgages may not be as strong. If prices decrease and a borrower fails, the MIC may not be able to recuperate its entire investment when it seizes and sells the asset.
Third, there is the possibility of a so-called “liquidity mismatch”. Investors in MICs may be promised fast access to their money if they desire so, but the MIC itself may not have enough funds on hand if enough investors hurry to withdraw at the same time.
5. What Should Investors Consider Before Investing?
a) High and rising rates of non-performing mortgages.
b) Anxiety over the situation of the housing market.
c) If some MICs prohibit redemptions, investors in other pools may attempt to sell their own shares.
d) Some MICs do not appropriately recognise some existing loans as non-performing.
Conclusion
Some investors reach for yield when interest rates are as low as they have been. That is, they want the maximum returns and frequently disregard caution in order to gain a few percentage points each year. Mortgage investment businesses are a prime example of such situations.
If you have finally decided to invest in a mortgage pool in Abbotsford, Versa Platinum’s MIC is your go-to choice. For past many years, we have helped hundreds of mortgage investors in gaining higher returns on their investments. For more details, give us a call today.
