With increasing stringency on mortgage lending criteria for traditional issuers, many Canadians have been turning to private real estate corporations to obtain their mortgages.
Whether a borrower is denied their application, is underserved by traditional lenders, or looking for more flexibility on their loan, mortgage investment corporations (MICs) have been working to fill in the gaps in the market.
Not only are MICs allowed more lending flexibility by regulators in comparison to banks and credit unions, but they can also offer more customized plans to individual borrowers.
But MICs are not just beneficial for potential home-buyers. They also provide everyday investors with an opportunity to get direct exposure to the mortgage market that has been growing across Canada at an increasing rate.
By investing in a MIC, investors can have steady returns that are an alternative to fixed-income investments and not as vulnerable to the natural fluctuations in the real estate market. They also provide an opportunity for smaller investors to reap the benefits of the real estate and mortgage markets.
Today, we’re going through some of the best mortgage investment corporations in Canada. This list will cater more towards investors rather than borrowers in the mortgage market, touching on the organizations’ structure and investment offerings.
It can also, however, be a good place to start if you’re looking to borrow from a MIC to purchase a home, as I will touch on topics such as where they lend in Canada and the types of properties they secure their mortgages on.
Before we get into the list, let’s quickly touch on some points that you should keep in mind. I thought these were important to know before going through Canadian MICs. This way, you can have a more holistic understanding of what they do, how they are regulated, and whether you are interested in learning more about them.
- Mortgage investment corporations usually charge higher interest rates for their mortgages in comparison to banks and credit unions and have significantly shorter terms (as short as one to two years)
- Most of your MIC investments can be registered, meaning they are eligible for RRSP, RRIF, RESP, and TFSA and RDSP. Make sure you stay within your contribution limit if you consider this option.
- A MIC must have at least 20 shareholders, and no shareholder can hold more than 25% of total capital.
- MICs are tax-exempt
- MIC investments cannot be made outside of Canada; both properties and investors must be within the country
- Although not subject to strict lending rules like banks, MICs are audited and must disclose their annual reports.
Comparison of MICs and Traditional Lending Institutions
Traditional lenders, like banks and credit unions, are bound by more stringent regulatory frameworks. These institutions have to adhere to strict lending criteria, which sometimes leads to potential borrowers being denied loans, especially if they don’t fit the conventional borrower profile.
In contrast, MICs often fill this gap by catering to those underserved or denied by traditional lenders. This flexibility and willingness to customize loan plans can make MICs attractive to certain borrowers.
From an investor’s perspective, MICs offer a way to gain exposure to the real estate market without investing directly in properties. They can offer steady returns and may be seen as a bridge between fixed-income investments and the more volatile stock market.
On the other hand, banks and credit unions are broader financial institutions, providing a wide range of services beyond just mortgages and typically have a more diverse investment portfolio.
It’s also worth noting that while banks and credit unions might offer longer mortgage terms at comparatively lower interest rates, MICs usually offer shorter terms and charge higher interest rates.
Best mortgage investment corporations in Canada
Here are the five best mortgage investment corporations in Canada.
- Atrium Mortgage Investment Corporation
- CMI Mortgage Investment Corporation
- MCAN Mortgage Corporation
- AP Capital MIC
- Timbercreek Financial
1. Atrium Mortgage Investment Corporation
Atrium markets itself as “Canada’s Premier Non-Bank Lender.” They offer great options for both borrowers and investors while having a diverse portfolio that lends mortgages secured by residential, multi-residential, and commercial property in Canada.
Overall, I like Atrium’s transparency; its monthly dividends, mortgage loan amounts, and loan-to-value ratios are clearly displayed for investors to take into account before going ahead with any investments. Most of their investments come with a one to two-year term and monthly interest-only payments.
Lend in: Ontario, Alberta, British Columbia
Property types: Residential, multi-residential and commercial
Average interest rates: 7.75% to 10% per annum
Dividend payments: Monthly interest-only payments
2. CMI Mortgage Investment Corporation
CMI mostly operates in Ontario and is structured as a suite of MICs. They offer first as well as second residential mortgages to borrowers, which not only means that their clientele is bigger than MICs that offer only first mortgages, but that their risk profile might look a little different, as well.
CMI MIC takes care of the entirety of the underwriting process of their mortgages and gives investors the confidence that they need by heavily investing in their own MIC portfolio themselves. Naturally, this is a big motivator for them to ensure that their lending is sound and returns are as high as possible.
Lend in: Mostly Ontario
Property type: Residential only
Average interest rates: 6% to 11% per annum
Dividend payments: Monthly
3. MCAN Mortgage Corporation
MCAN has been well entrenched in the real estate market since the 1980s, which means that they know what they are doing.
They are not only registered as a MIC but as a loan company and also have a wholly-owned subsidiary, XMC Mortgage Corporation, that offers single-family residential mortgage products across Canada.
As a company, they are funded primarily by CDIC-eligible term deposits and are a public company listed on the Toronto Stock Exchange under the ticker “MKP.”
Working as a MIC means that MCAN is permitted to deduct the dividends that they pay to shareholders from their taxable income, so they pay out all of their taxable income as dividends, as do other MICs in Canada.
Lend in: Across Canada
Property type: Uninsured single-family mortgages and residential construction loans
Dividend payments: Quarterly
4. AP Capital MIC
AP Capital is registered both as a REIT (real estate investment trust) as well as a MIC. They lend across the country, with a majority (90%) of their mortgages in British Columbia. 85% of their mortgages fund first mortgages, whereas the remainder 15% fund second mortgages.
Like Atrium, I find AP Capital’s website easy to navigate, which allows me to obtain the answers that I’m looking for, such as returns, dividend payments, Loan to Values (LTV), and other important facts with ease.
Lend in: across Canada, mostly British Columbia
Property Type: Residential and owner-occupied
Average interest rates: 7% to 9% per annum
Dividend payments: monthly distributions
5. Timbercreek Financial
Timbercreek is traded on the Toronto Stock Exchange under the ticker “TF.” As a company, they specialize in providing shorter-term structured financing solutions to commercial real estate investors.
Unlike the above examples, Timbercreek MIC specializes in multi-residential, office and retail buildings located in urban markets across Canada – as opposed to residential buildings.
By regulation, they must have 50% of their mortgages in residential buildings, but their residential offerings are capped at just that. The rest of their portfolio is in commercial properties, which is significantly higher than other Canadian MICs.
Due to their expertise, Timbercreek is a great option for those looking to invest in portfolios with commercial-heavy profiles.
Lend in: Across Canada, mostly British Columbia
Property Type: Residential and owner-occupied
Average interest rates: 7% to 9% per annum
Dividend payments: Monthly distributions
The 7% return on some of these MIC investments surely looks attractive in comparison to other fixed-income investments such as term deposits (also known as guaranteed investment certificates) and bonds.
As you should with any other type of investment, however, there are risks associated with MIC investments that you should consider before investing.
For instance, take housing bubbles into consideration. If borrowers start defaulting on their loans for any reason, a MIC may not be able to recoup all of their money on home sales during a declining market.
In addition, the credit ratings of borrowers may not always be as sound as those borrowing from traditional banks. As mentioned earlier, MICs usually serve those who are declined or underserved by traditional lenders (banks and credit unions) who have been subject to stricter rules over the years by their regulators.
Willingness to pay upwards of 10% interest on their mortgage could indicate that an individual is a subprime borrower, thus increasing the risks of your investment.
Despite this, your MIC investment may not be subject to as much volatility as, for example, investments in the stock exchange because mortgages tend to have much more stability. Either way, it’s good to do your research before coming to a decision.
MICs and Taxation
One of the most significant features of MICs is their tax-exempt status. This means that, at a corporate level, MICs are not required to pay income tax. Instead, they distribute their net income to shareholders, and this income is then taxed in the hands of these shareholders at their respective tax rates.
This flow-through structure ensures that the income isn’t double-taxed. For investors, this can be beneficial as they might be able to receive steady, taxable returns without the corporation itself incurring tax.
However, it’s important to note that while MICs provide potential tax advantages at a corporate level, investors should still be aware of their personal tax obligations on any received distributions, especially if the investments are held outside of registered accounts like RRSPs or TFSAs.
Two things characterize a CMI mortgage: high interest rates and short terms.
As you may know, a traditional lender such as a bank or a credit union can sometimes issue mortgages with terms up to 25 years, with a variety of rates around 4-5%. Things are different with CMI mortgages. Terms can be as short as 1-2 years, and rates around 7-10%.
Another thing that is important to take into account with CMI mortgages is their loan-to-value (LTV) ratios.
LTVs represent the ratio between how much you are putting down towards the house (your down payment) and your mortgage/borrowing amount. For instance, putting down $25,000 for a home worth $500,000 means that your LTV is 95%, which is considered to be too high even for CMIs.
The lower the LTV ratio (i.e., the more you can finance before getting a mortgage), the better. In most cases, CMIs aim for LTV ratios below 75%.
How do mortgage investment corporations make money?
MICs are only flow-through investment vehicles and must legally distribute 100% of their net income to shareholders.
In order to make money, mortgage investment corporations invest in mortgages (as well as real estate) themselves and also usually have different corporate arms in their business that have various product offerings related to the real estate market.
Their main goal is to bring clients into their business, whether they are investors or borrowers.
If you’ve been thinking about how to get in on the growing mortgage market or have recently been looking to diversify your investment portfolio, MICs are a great place to start.
With steady and regular returns, they can provide for a passive income or an opportunity to have your investment exponentially grow through reinvestment.
There have potentially never been a better time to think about real estate investments in Canada. On my website, I’ve written about topics such as the best real estate stocks, best REIT ETFs, and best real estate investment options to help you out.