When choosing a mortgage, you usually have the option of getting one from a bank or credit union. But, if you’re having a hard time qualifying, you can get a mortgage from a mortgage investment corporation (MIC).
The ABCs of MICs
MICs, which are sometimes known as mortgage investment entities, are private lenders. They were created in 1973 as a way to stimulate private lending and to make it easier for smaller investors to invest in residential mortgages and real estate.
According to the Canada Mortgage and Housing Corporation (CMHC), MICs had a market share of 1.1% of all outstanding mortgages in Canada in the fourth quarter of 2023. That compares to the Big Six banks’ market share of 73.1% in the same period.
There are a number of MICs in Canada such as AP Capital Mortgage Investment Corporation, Atrium Mortgage Investment Corporation, Cannect Mortgage Investment Corporation, and MCAN Financial. Some are publicly traded on a stock exchange while others privately held.
When to use a MIC
A MIC is primarily aimed at people who can’t qualify for a mortgage or need financing fairly quickly.
“MICs are usually the lender of last resort,” says Eitan Pinsky, owner/broker of Pinsky Mortgages in Vancouver.
He says that the people that use a MIC typically fall into one of two camps. The first is someone who has very bad credit or no income. They may have lost their job or the mortgage was called by the bank and can no longer qualify, he explains.
“The second type of person who does this is an investor who’s building or needs short-term financing,” Pinsky says.
They’re typically a sophisticated investor building a home on spec with plans to sell the property later. It may take too long to get financing the traditional way and they will turn to a MIC, he adds.
Related: Dos and don'ts when getting a mortgage from a private lender
Benefits and risks of using MICs to buy a home
The obvious benefit of a MIC is that you should be able to get your money much faster than a traditional lender.
However, there are considerable drawbacks to securing a loan through an MIC.
Interest rates on a MIC mortgage are usually three to five percentage points higher than what you could get from a traditional lender.
The lowest rate may be around 8% and they will typically average around 10%, Pinsky says. On second mortgages, the rate could be around 12% or higher.
Beyond a higher interest rate, MICs may come with additional expenses. Many MICs will charge a fee of 2% to 4% of the mortgage amount or 3% to 4% if it’s a second or third mortgage.
On a $400,000 mortgage, for example, that could be a fee of between $8,000 and $16,000.
Most mortgages from a MIC are fixed and have a one-year term, but some are variable. If you must get a MIC, Pinsky recommends going through a broker.
That’s because some MICs that offer mortgages directly to consumers prey on uninformed borrowers. As a result, these MICs may charge higher rates and fees “because the client doesn’t know any better,” he adds.
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Have an exit strategy in mind
Getting a mortgage with a MIC, like any alternative lender, is really a stopgap measure. In an ideal world, you should have it for as short of a time as possible because the longer your loan term, the more you’ll pay in interest.
Getting out of a mortgage with a MIC typically takes the form of one of two options:
- Refinancing with a traditional lender, or
- Selling the property.
There’s also the possibility of finding another MIC, but that’s not ideal.
Since you want to rid yourself of this loan as soon as possible, most people enter a contract with an MIC with an exit strategy already in mind. In fact, the exit strategy is usually planned in conjunction with the borrower prior to the origination of the loan, typically as part of the approval process.
This strategy should outline your ability to either improve your finances so you are able to qualify a mortgage with a traditional lender or sell the property to pay off the loan.
Are MICs a good investment?
MICs are not only for borrowers – they’re also a way for someone to gain access into property investing, which is traditionally seen as a high-yield investment opportunity, like dividend stocks.
There are two different types of MICs to invest in: Publicly traded MICs that trade on a stock exchange and can be purchased through an online brokerage, and private MICs that you invest in directly.
Publicly traded MICs are much more liquid. You can sell the shares and have access to your money within one business day. You can also buy as many shares of a publicly traded MIC as you desire. There’s no maximum investment.
Private MICs aren’t as liquid and may instead take longer for investors to see a return. Or they may impose restrictions on much you can invest and how often you can sell. If you think you might need your money very quickly, a private MIC isn’t a good choice.
However, MICs and other high-yield investments (such as some dividend stocks) can sometimes fall out of favour because certain stocks, ETFs or sectors may present a better opportunity.
Read more: How to own real estate via the stock market if you don’t want to be a landlord
The take-away
Getting a mortgage through a MIC is an option if you can’t qualify for one with a traditional lender or if you need to close very quickly. However, it is strongly recommended that you develop an exit strategy before considering borrowing with an MIC, as the cost of a mortgage with a MIC is going to be much more expensive, due to higher interest rates.
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Engaging a mortgage broker before renewing can help you make a better decision. Mortgage brokers are an excellent source of information for deals specific to your area, contract terms, and their services require no out-of-pocket fees if you are well qualified.
Here at RATESDOTCA, we compare rates from the best Canadian mortgage brokers, major banks and dozens of smaller competitors.
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