A Mortgage Investment Corporation (MIC) is a type of investment fund in which investors pool their money to provide private mortgage loans to borrowers. An investor purchases shares in a MIC by contributing to this pool of funds. This is an alternate fixed-income investment: a security that pays out fixed sums on predetermined dates.
Most MICs then boost their pool of shareholder cash by borrowing money from banks in the form of loans.
The MIC lends this combination of shareholder funds and bank loans to borrowers in turn. The MIC’s mortgage portfolio consists of these borrowers’ agreements to repay the MIC, as well as the real estate that serves as security for these agreements.
When borrowers make their mortgage payments, any associated fees and interest are returned to the fund. This permits the MIC to pay dividends to shareholders and, if it were a borrower, interest to banks.
What Are MIC Regulatory Requirements?
MICs are subject to regulatory procedures and oversight, which ensures compliance with securities laws and investor safety. Since 1985, when Section 130.1 of the Income Tax Act was implemented, MICs have been widely employed for real estate investment in Canada. This federal law permits investors to invest in a pool of mortgages.
In Ontario, the Ontario Securities Commission regulates the administration and operation of MICs. Mortgage investment corporations are required by the profits Tax Act to transfer 100% of net profits to shareholders through dividends, as certified by independent audits. Typically, a Board of Directors gives extra strategic direction.
Choosing the Right MIC Is Crucial For Wealth Generation
Choosing the best MIC for you is not as simple as determining who has the highest Return on Investment (ROI). Investors considering a MIC should carefully evaluate the corporation’s portfolio composition, track record, and mortgage underwriting process. Similarly, before investing in a MIC, make sure you understand your total risk profile. This could include speaking with a financial advisor or specialist to better grasp the precise specifics and risks linked with an MIC.
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