mortgage simple definition: Mortgage Investment Corporations Explained

Mortgage Investment Corporations Explained

Mortgage Investment Corporations Explained. CrossCountry Mortgage, Inc. - FastTrack Credit Approval - Animated Explainer Video

Mortgage Investment Corporations Explained video duration 1 Minute(s) 56 Second(s), published by Alexis Assadi on 19 03 2018 - 14:00:03.

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In this video, I'm going to explain what mortgage investment corporations are
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Hey, it’s Alexis Assadi.

In this video, I’m going to explain what mortgage investment corporations are.

A mortgage investment corporation, or a MIC, is a Canadian company that lends money against real estate in Canada. That is, it issues mortgage loans secured against properties and profits by charging interest and fees on the loans. If the borrowers default, the MIC can foreclose on the real estate and sell it in order to recoup its capital.

At least 50% of a MIC’s holdings must be in residential mortgages, cash or cash equivalents. They don’t pay taxes, so the tax burden is passed onto investors. However, they can usually be held within tax-sheltered accounts, like RRSPs and TFSAs. MIC are especially popular with people who seek income, since they have to pass on 100% of their net income to investors.

In theory, a MIC can be a great way to gain exposure to property-backed lending. They can offer high yields, stable revenue distributions and a relatively predictable business model.

But, like most other companies, their performance is often contingent on management skill, strategy and care. There have been many MICs that were too aggressive with their loans. Some placed too much capital in the hands of too few borrowers. Others didn’t take quality collateral for their loans. Shareholders bear the brunt of the consequences when defaults occur. As such, it’s important to vet each MIC on a case-by-case basis.

One of the key indicators to look for during your research should be a MIC’s average and maximum loan-to-value, or LTV, ratio. This will give you a sense of how aggressive management is willing to be with risk. I have several free articles and videos that can explain LTV to you further.

Another due diligence point is to know where, geographically, the MIC in question lends to. In general, it should be in a part of the country where real estate prices are either stable or are expected to rise. If property markets fall, it can threaten the value of the MIC’s collateral.

A good MIC can be a great investment. Be sure to read my articles at alexisassadi.net to help with your research.

To learn more about building wealth through investing, real estate and entrepreneurship, watch my 2-minute video at alexisassadi.net/free-video