If you have a mortgage, you’ve probably wondered where all those payments you’re making end up. What if you could be on the other side of that transaction, earning passive income instead of paying it?
Some of that mortgage money ends up in traditional bond markets through something called mortgage-backed securities. But other times, those mortgages are held directly by a special type of investment company designed to pay out the interest to individual investors. These are called Mortgage Investment Corporations, or MICs.
Here’s what you need to know about how MICs work in Canada, and how to decide if they belong in your investment portfolio.
What Are MICs?
Think of a MIC as a professionally managed pool of private mortgages, backed by real estate. When you invest in a MIC, you’re essentially lending money to borrowers, often through residential or commercial mortgages and earning regular income from the interest they pay.
MICs are a form of indirect real estate investment, much like real estate investment trusts (REITs). But the space is more specialized, less liquid, and has a few unique features when it comes to risk, liquidity, and taxation.
Unlike operating businesses like a restaurant chain, a MIC doesn’t sell products or provide services to customers. And unlike holding companies that own other businesses, a MIC’s only job is to manage a pool of mortgages on behalf of its investors.
How Does It Work?
When a MIC is created, it raises capital by selling shares to investors at a fixed price per unit. The money raised is then used to fund mortgages directly.
These aren’t typically the kinds of mortgages issued by big banks. Instead, they’re often higher-interest, shorter-term loans designed for non-traditional borrowers such as:
- Self-employed individuals
- Real estate investors
- Or those who might not qualify under strict bank lending rules.
The people working at the MIC are responsible for sourcing, underwriting, and managing those mortgage loans. As borrowers make their monthly payments, the MIC collects interest. After covering management fees and operating expenses, the surplus income is paid out to investors in the form of regular dividends*.
| *Important Note: The dividends paid by a MIC are not eligible dividends like the ones you’d receive from blue-chip Canadian companies. Instead, they’re taxed as interest income. This is because MICs are structured to distribute all of their annual income as a “flow through” vehicle, which allows them to deduct those payouts from their taxable income at the corporate level. |
A Visual Breakdown On How It Works When You Invest In An MIC
| Step | Description |
| 1. You Invest In An MIC | You, the investor, invest in an MIC by buying shares of an MIC stock through a brokerage account such as Questrade or a financial advisor. |
| 2. Funds Are Pooled And Lent Out | The money from investors is then used to fund mortgages directly. |
| 3. Borrowers Pay Interest | The borrowers make monthly mortgage payments with interest. |
| 4. Interest Income Collected And Paid To Investors | The MIC collects the mortgage interest and distributes all net income to the investors in the form of dividends* |
Types Of MICs You Can Invest In
Now, there are two main ways to invest in MICs: public MICs and private MICs. Each has its own benefits and trade-offs in terms of accessibility, transparency, and risk, which we’ll cover next.
Private MICs
Private MICs are not traded on a public stock exchange. That means you can’t log into a brokerage app like Wealthsimple or Questrade and buy shares the same way you would with a stock or ETF.
Instead, private MICs are typically accessed through exempt market dealers, offering platforms, or directly through a financial advisor. Most have a minimum investment requirement, which is the minimum amount of capital you must commit upfront.
Features Of A Private MIC
- You Can’t Sell At Any Time. Unlike stocks, you can’t sell your position whenever you like. Redemptions are usually subject to gates, meaning you can only withdraw your money monthly, quarterly, or annually, depending on the MIC’s structure.
- Regular Dividend Payments. With private MICs, investors typically receive regular dividend payments, often on a monthly basis. Many private MICs offer a target yield, often in the 6% to 8% range, although actual results can vary.
- Management Fees. Like mutual funds and ETFs, private MICs charge an ongoing management fee, usually expressed as a percentage of assets under management (AUM). For example, if the fee is 1%, and you invest $100,000, you would pay roughly $1,000 per year in fees.
Should You Invest In A Private MIC?
Private MICs offer more control and often higher yields, but they come with reduced liquidity, higher due diligence requirements, and less regulation than public alternatives. That’s why it’s crucial to understand exactly what you’re investing in, and how that MIC manages risk.
| Do Private MICs Provide Portfolio Performance Data? The better-run MICs are transparent about their underlying portfolio. They may provide detailed reporting on: – Weighted Average Loan-to-Value (LTV): This shows how much cushion exists between the loan amount and the underlying property value. Lower is generally safer. – Average Mortgage Size: Gives insight into the kind of borrowers or deals the MIC targets. – Weighted Average Interest Rate: Tells you what rate of return the MIC is earning on its mortgage portfolio. – Security Position: Mortgages can be in first, second, or even third position. First position means the MIC gets paid first in the event of default, which usually makes it less risky. – Property Type Mix: Many MICs will show how much of their portfolio is in residential, commercial, or even industrial real estate. – Geographic Breakdown: Some will report what percentage of their portfolio is in specific provinces or regions. |
Public MICs
Public MICs operate much like their private counterparts, with one major difference: they trade on public stock exchanges. That means their financials are audited, publicly available, and updated on a regular basis through quarterly and annual reports.
There are currently four publicly traded MICs listed on Canadian exchanges. All are small-cap stocks with market capitalizations under $1 billion:
- Atrium Mortgage Investment Corporation (AI)
- Builders Capital Mortgage Corp. (BCF)
- MCAN Mortgage Corporation (MKP)
- Firm Capital Mortgage Investment Corporation (FC)
Mechanically, public MICs work the same way as private ones. They raise capital, invest in pools of mortgages, collect interest payments, and distribute the excess income to shareholders.
Features Of A Private MIC
- Transparency. Like private MICs, public ones will typically disclose details such as loan-to-value ratios, average mortgage size, interest rates, and security position in their reporting, so you still get transparency into what you’re investing in.
- Dividend Payments. Yields tend to fall in a similar range, usually between 6% and 8% and most pay monthly dividends, although some opt for quarterly payments instead.
- You Can Buy Or Sell Anytime. The main benefit of a public MIC is liquidity. You can buy and sell shares anytime the stock market is open.
- Can Be Volatile. Because shares of public MICs trade on the open market, they’re influenced by supply and demand, not just the value of the underlying mortgage portfolio. This makes them more volatile. When there’s more selling than buying, the price can fall, even if the underlying assets remain stable. When demand outpaces supply, the share price can rise.
Should You Invest In A Public MIC?
With no minimum investment amounts beyond the cost of a single share, public MICs are more accessible for investors. Moreover, due to its volatility, public MICs often trade at a premium or discount to their net asset value (NAV), which is the fair market value of all mortgages held, minus liabilities, divided by the number of shares outstanding.
Pros And Cons Of MICs
While specific details can vary depending on the MIC, there are some common strengths and weaknesses to consider across both public and private options.
Pros
- Attractive Yields: Many MICs offer target or historical yields in the 6% to 8% range, often paid monthly, higher than most GICs, dividend stocks, or bond funds.
- Diversified Mortgage Exposure: Instead of lending to a single borrower, your investment is spread across dozens or even hundreds of mortgages.
- Tax-Advantaged in Registered Accounts: Though MIC income is taxed as interest, holding them in a TFSA, RRSP, or FHSA shields you from taxes entirely.
Cons
- Credit Risk: Borrowers may default on their mortgage payments, and MICs focused on higher-yield, non-prime lending carry greater risk.
- Liquidity Constraints: Private MICs often restrict redemptions to specific intervals (monthly, quarterly, annually), while public MICs may trade below NAV.
- Interest Rate Sensitivity: Rising rates can pressure MICs by increasing borrower defaults or reducing mortgage demand, while falling rates can compress interest income.
Should You Invest in MICs?
MICs are best suited for investors looking for consistent passive income from real estate-linked investments, but on the lending side, not the ownership side. If your goal is capital appreciation from REITs or flipping properties for big gains, MICs won’t get you there. These investments prioritize yield over growth.
Things To Remember Before You Invest
- Taxes. Since MIC distributions are taxed as interest income, they’re far less efficient than qualified dividends in a non-registered account. That’s why it’s important to make sure you have room in a registered account before allocating capital to a MIC. If you’re investing in a taxable account and comparing income options, regular dividend-paying stocks are likely more tax-friendly.
- Fraud. It’s also worth noting that the private MIC space has had cases of fraud, including funds being misappropriated by management for personal use or to fund unrelated ventures. A good rule of thumb: if a private MIC is promising guaranteed double-digit yields or quick returns with minimal risk, that’s a red flag. In some cases, private MICs have been found to be outright Ponzi schemes.
- Read The Fine Print. For public MICs, check financial statements, payout history, loan portfolio breakdowns, and any premium or discount to NAV. For private MICs, go further: review redemption policies, loan types, geographic exposures, and fee structures. Above all, check the LTV ratio, with lower LTVs generally meaning more protection if borrowers default.
Learn more: How To Evaluate A Stock
Bottom Line
If you’re income-focused, realistic about the risks, and thoughtful about account placement, MICs can be a useful tool in your income strategy. But like all private lending, they require extra diligence and hands-on management.
