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Frequently asked questions
What is a Mortgage Investment Corporation (MIC )?
A MIC pools investor funds to offer short-term financing 6-36 months) backed by real estate. The interest and fees paid by borrowers, net of operating costs, are passed on to investors. Due to the current low interest rate environment, investors seeking higher yields are drawn to the MIC space.
What role do MICs play in the Canadian residential mortgage market?
The Canadian residential mortgage market was estimated to have $1.3-$1.4 trillion in principal outstanding. Of this, MIC's represent just 1% ($13-14 Billion) of mortgage lending. The majority is held by the large banks and credit unions (89% as of Q3, 2018), while dedicated Mortgage Finance Corporations make up the balance (6%).
How does the HRU MIC compare to other investments like stocks?
There are a number of advantages with HRU:
Why do borrowers use MICs over banks?
MICs offer advantages over traditional banks and lenders because they have more flexible lending guidelines. MICs can offer individually-structured, tailor-made loans to meet the specific requirements of a borrower. In addition, banks have lengthy due diligence processes (up to 2 months) and are typically not able to meet some borrowers’ quick capital needs. Most MICs are typically able to structure, complete due diligence and fund loans within 2 - 4 weeks.
How does HRU MIC make money?
Our business model is very similar to the traditional banks. We are considered a balance sheet lender in which we accumulate assets in fixed-term interest-based investments, and lend out mortgages to residential borrowers. The collected monthly mortgage interest is paid to our investors as monthly interest return (similar to a saving accounts).
How do I know my money is safe with HRU (e.g. Ponzi scheme, syndicated mortgage, etc.)?
HRU is an on-going, legitimate business providing residential mortgages to clients. We generate real income from the collected interest of the mortgages, and distribute that interest to investors. We DO NOT use new investors money to pay out existing investors (such as in a Ponzi scheme).
HRU MIC is registered with the Financial Services Commission of Ontario (license #M17000250), registered with the Ontario Securities Commission as a securities product, and is subject to annual audit by an independent auditor to Canada Revenue Agency(CRA).
As an investor with HRU MIC, you are entitled to attend the Annual General meeting, and can login online to check on your investment 24/7. You are also entitled to receive quarterly statements regarding your investment and details about the overall performance of the company.
In contrast, a Ponzi scheme does not have a real business. It is a fraudulent investment operation that pays returns to its investors from the investor's own money or the money paid by subsequent investors, rather than from profit earned by the company's operation.
Syndicated mortgages have also received negative media attention recently, with some high-profile collapses resulting in investors losing some or all of their money. While many syndicated mortgages are legitimate, they inherently carry a high degree of risk because they loan to very early stage projects secured by little to no collateral (e.g. undeveloped land). If the development does not proceed as planned, there may not be enough asset value remaining for investors to recover their principle.
What is a second mortgage? Is it bad?
The main difference between a first (Senior) and second (Subordinated) mortgage is debt seniority. A second mortgage is not "worse" than a first mortgage, it is simply the position it occupies in terms of "which mortgage gets paid first". A Home-Equity Line of Credit (HELOC), for example, is often a second mortgage if there is still an existing mortgage on the property.
From a lender's perspective, in the event of a default, both first and second mortgagees have the right to foreclose on the property and sell it on the market for repayment. However, the first mortgagee is at the first position to get the proceeds; and the second mortgagee will be entitled to the remaining amount. Since second mortgages are behind (subordinate to) the first mortgage, they can be considered more risky and therefore demand a higher return.
In today's market, first mortgage interest rates often range from 3-5%, while second mortgage interest rates can be 10% or higher. Since HRU includes higher-rate second mortgages in our portfolio, we can provide our investors with higher returns.
What is the minimum investment I can make?
The minimum amount is $10,000 with exceptions to Registered Accounts, and will require the investor to have an Eligible Investor Certificate. Investors who choose to invest over $100,000 will require an Accredited Investor Certificate. Both certificates can be completed with your Exempt Market Dealer (EMD) or our Financial Advisors.
How will my return be treated for Tax purposes?
Mortgage Investment Corporations have a special tax status. The Canada Revenue Agency will deem your income from HRU MIC to be interest income and tax it accordingly; T5 slips are issued at the end of each calendar year.
How do changes to the Real Estate Market and Prime Rate affect HRU?
While real estate values may change, investors do not have the same concerns as owners about possible value losses. As long as the financing opportunities are well selected, the return is fixed over the life of the financing.