If you’re looking to invest in a Mortgage Investment Corporation (MIC), you’ll need to know the comparison to mortgage brokers and private lenders. It’s important to have a clear idea of the benefits that each of these offers to both borrowers and investors.
What Are Mortgage Investment Corporations (MIC)?
A Mortgage Investment Corporation (MIC) is an alternative lender that pools capital from different investors. They can spread out the risk over several different loans. Interest payments are collected on the mortgages under the MIC, and it can distribute money to investors on a quarterly or monthly basis.
For borrowers, these MICs look at loan applications based on criteria different from those of traditional banks. The process is more streamlined and relies on the market value of the property and the equity that builds up, rather than a credit score.
Different Types of Products
They offer different types of mortgage products, like private second mortgages, which can be used for bridge financing and debt consolidation. Another difference here is that an MIC will take on a bad credit mortgage. One of the biggest factors that can damage your credit score is your payment history, according to Equifax. In fact, 35% of your score centers on how you repay your credit, which includes mortgage loans, auto loans, student loans and others.
If you’re investing in one of these MICs, you’ll want to know how you can make money from what you put in.
How MICs Generate Returns for Investors
MICs charge interest on loans, and that’s how they make money. There’s a diverse and varied portfolio of mortgages involved, so the risk gets spread out. It’s this kind of scale that can protect an investor’s return.
They are also considered a “flow-through” entity under the Canadian Income Tax Act. In a nutshell, that means that they don’t pay corporate income tax and the net income is passed along to the investors who are responsible for paying personal income tax on the money.
The bonus here is that the investors only pay tax once. Another advantage is that the shares from a MIC can be held in accounts that can defer or eliminate taxes like TFSAs and RRSPs.
MICs vs. Private Lenders
Both of these options offer alternative financing solutions that are different than traditional banks. However, private lenders and MICs are different in three areas: flexibility, regulation, and structure.
- A MIC might need board approval to okay loans, so the speed at which they can process an application and the approval speed isn’t as fast as with a private lender.
- Private lenders deal with clients more directly and can approve loans in some cases in 24 hours to 48 hours.
- A MIC also uses standardized underwriting guidelines.
- On the other hand, a private lender can approve loans on a case-by-case basis. They can customize loans in a much more flexible way.
The Regulations
There’s a difference in the regulations between the two.
For the MIC
Section 130.1 of the Income Tax Act outlines how these organizations need to operate. Other regulations include:
- The fact that an MIC needs to be a Canadian corporation. It must be either a private investment vehicle or a public corporation. Depending on where it is incorporated, it needs to follow all the appropriate laws in that province.
- Some of the other regulations include the fact that 50% of the assets need to be residential properties or mortgages. An MIC can invest in a first or second mortgage.
To qualify for tax-exempt treatments, they need to have at least 20 shareholders. There’s an owner concentration cap of 25%. No shareholder can own more than that percentage of the shares.
And the MIC also needs to distribute 100% of the net income to the shareholders each year.
For the Private Lender
Mortgage brokers can work with private lenders who are not licensed themselves. The agents and brokerages who work with private lending are governed by Ontario’s Mortgage Brokerages, Lenders and Administrators Act (MBLAA). This act looks after mortgage brokers, administrators and lenders in Ontario. It has regulations and standards and provides guidelines and obligations. These are designed for lenders and can also help borrowers understand a mortgage agreement.
The regulatory body that looks after compliance is called the Financial Services Regulatory Authority of Ontario (FSRA). It makes sure the private lenders who are not brokers and those who work with them adhere to the MBLAA.
Investors need to consider diversification with an MIC since it makes for less risk. On the other hand, a private lender has higher returns that are riskier.
The Role of Mortgage Brokers in Connecting Borrowers with MICs and Private Lenders
Mortgage brokers are the professionals who fill in and bridge the gap between borrowers and Mortgage Investment Corporations and or private lenders. They can help identify borrowers who qualify for these alternative mortgages because of fluctuating non-conforming income, bad credit, and self-employment.
These brokers who are licensed through the FSRA need to be sure they meet disclosure requirements, which need to include transparent numbers on lenders’ fees, interest rates and payment schedules.
Mortgage brokers can also help with mortgage applications for either a MIC or a private lender with credit reports, appraisals, and proof of income.
Pros and Cons of Each Type of Lender
Understanding the benefits and drawbacks of each option is crucial.
MICs
Pros
A MIC has flexible lending criteria, prioritizing equity over other factors, such as credit scores. This option can provide a private second mortgage that can stop a power of sale.
An MIC has a big advantage for investors because they get to buy into a diverse portfolio of different mortgages that reduces risk.
Cons
They can lend to individuals with unconventional income sources and less-than-perfect credit scores. Investors are exposed to high-risk borrowers, which increases the chances of default.
Traditional Lenders
Pros
Traditional banks are federally regulated. They offer lower interest rates for people looking for loans and are a safer investment for investors.
Cons
For investors, banks represent stable dividends that might be lower than high-risk investments, such as those provided by private lenders or MICs. Borrowers need to be aware that this option requires high credit scores and stable income sources.
Private Lenders
Pros
Borrowers looking to get fast access to capital to stop a power of sale can take advantage of the fact that these loans have a streamlined application process. This works for investors, too, when they are looking to capitalize on a time-sensitive opportunity.
Cons
Private loans can be short-term, lasting a year and have interest-only payments. That works to the advantage of a borrower who needs a short-term infusion of cash. For investors, it also means they are going to have higher interest rates.
As of April 2025, most private lenders charge between 8% and 12% interest rates.
Regulations and Risks of Investing in MICs
Because the private mortgage sector is expanding, the Financial Services Regulatory Authority of Ontario (FSRA) is watching MICs more closely. They’re making sure that mortgage brokers who are working with private lenders are disclosing all the proper information. They made some recommendations based on the fact that a high percentage of brokerages didn’t have the right procedures in place relating to MIC mortgages.
One of the risks of investing in an MIC is a conflict of interest, whereby some organizations prioritize the interests of another MIC over those of the consumer. Some of the other risks that were found related to companies that did not have borrower suitability assessments done.
You can learn more about private loans and private lenders by reading our complete guide.
