M.I.C.s: An alternate way to finance a new home

Rob Carlsen has been investing in rental properties for more than two decades. However, in 2017, he and a partner began investing in fixer-uppers.

“We started buying older townhomes in Langley and Surrey for the sole purpose of flipping them for profit within less than a year,” Carlsen says. “Because the big banks don’t like short-term lending, and we didn’t qualify under the bank’s new borrowing rules, our only alternative was to get our financing through a M.I.C.” (Mortgage Investment Corporations and private lenders company.)

With Vancouver’s over-heated real estate prices and increasing federal government regulations, (like the mortgage stress test), M.I.Cs have become extremely attractive to investors, first-time homebuyers and immigrants.

According to a spokesperson at CMHC (Canada Mortgage and Housing Corporation), the main activity of a M.I.C is residential mortgage lending.

Under Canadian law, M.I.C-lending is limited to the financing of real property in Canada, and at least 50 per cent of its assets must be invested in residential mortgages or insured deposits.

Carlsen weighed his options and felt the higher interest rates and extra fees charged at a M.I.C were worth it.

“A M.I.C was an ideal situation in order for us to keep profiting from flipping homes,” says Carlsen. “We are paying 7.99 per cent interest, but it is worth it to us. We also had to pay a one per cent brokerage fee to set up the financing. We analyzed our profit versus expenses, and we felt we were still getting a very good return on investment (R.O.I.).”

M.I.C.s aren’t new, says Tyler Wilson, a mortgage broker and partner, Pilot Mortgage, Dominion Lending Centres. In fact, they’ve been around since 1973.

“We have been using M.I.C.s as an alternative lending solution for clients for 10 years,” says Wilson.

“However, since 2018 when the mortgage rules changed, we have certainly seen an increased demand for this type of financing. They now make up about 15 per cent of our business.”

His firm works with clients, such as Carlsen, as well as first-time homebuyers.

“We look at a client’s income, the value of the property, assess their risk and then we ask ourselves, ‘Does a M.I.C. make sense for this particular client,’” says Wilson. “If it does, we explain all of the fees.”

Typically, a M.I.C. will charge a lending or brokerage fee of between one to three per cent of the amount borrowed, depending on the risk the M.I.C. is taking on. In addition, whereas a bank loans money based on a person‘s income, a M.I.C. bases its approval on the value of the property it is financing.

“A client also pays for the M.I.C.’s legal fees to register the mortgage. The amount varies between $1,000 and $2,000,” explains Wilson, adding M.I.C.s are so well capitalized, the risk to borrowers is extremely low.

“Another benefit of using a M.I.C. is how quickly they will approve a loan, typically within 48 hours, versus a bank, which can take up to two weeks now.”

Wilson went on to say: “M.I.C.s allow clients to buy a home, carry financing between sales or allows developers, who are seeking construction financing, to continue to build homes.”

CMHC recently put out its first ever Residential Mortgage Industry Report in which it statesthe following about M.I.C.s:

• As unregulated entities, M.I.C.s do not take deposits and are not subject to federal or provincial mortgage lending rules
• Average mortgage is $194,760
• Interest rates fluctuate between seven – 15 per cent, depending on the risk the M.I.C. feels the loan is
• 61 per cent of M.I.C.s are based in Ontario and B.C.
• Market share of M.I.C.s is only one per cent (2015 stat) but growing, versus banks at 75 per cent
• M.I.C.s hold an estimated $13-$14 billion of outstanding mortgages. Its share of mortgage starts was more than double its share of the stock, which is partly due to its increasing market share in the uninsured space.
• CMHC’s study suggests the risk factor is low, as M.I.C.s do have measures in place to control credit risk