What You Need to Know About Mortgage Investment Corporations?
Many investors seek alternative investments to diversify their portfolios and potentially achieve better returns compared to traditional investments like stocks and bonds. One such option is Mortgage Investment Corporations (MICs). This comprehensive guide will help you better understand what a mortgage investment corporation is, how it works, and what the benefits are associated with investing in them.
What is Mortgage Investment Corporation?
Created in 1973, MICs are a type of investment vehicle that allows investors to pool their funds and lend them out as mortgages. These investments generate income through interest earned on mortgages held by the MIC, which is then distributed to investors. MICs are regulated by Canadian federal and provincial laws and must adhere to specific requirements, such as distributing at least 95% of their annual income to shareholders.
How do Mortgage Investment Corporations Work?
MICs primarily focus on providing loans to real estate developers and property owners who may not meet the strict lending criteria of traditional banks. These loans, also known as private mortgages, are typically short-term and carry higher interest rates, which translates to potentially higher returns for MIC investors.
Investment in MICs can be made directly through the mortgage investment corporation or indirectly through investing in shares of the MIC listed on a stock exchange. These shares represent a proportional interest in the underlying portfolio of mortgage loans held by the corporation.
Benefits of Investing in Mortgage Investment Corporations
- Portfolio diversification: MICs offer exposure to the real estate market and can help diversify an investment portfolio, potentially reducing overall risk.
- Steady income generation: MICs are required to distribute their earnings to investors, making them an attractive option for investors seeking regular income.
- Higher returns: Due to higher interest rates associated with the loans provided by MICs, investors tend to enjoy higher returns compared to traditional fixed-income investments.
- Professional management: MICs are managed by experienced professionals who understand the intricacies of mortgage investment and lending. This ensures that investments are made in well-researched properties with strong potential for success.
To Sum Up
Mortgage Investment Corporations are a type of investment vehicle that allows investors to pool their funds and invest in mortgages. These investments generate income through interest earned on the mortgages and offer potential benefits such as portfolio diversification, steady income generation, higher returns, and professional management. However, it is important to consult a financial advisor for advice before making any decisions. With the right advice and guidance, MICs can be a great way to diversify your portfolio and earn higher returns.
