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  • 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. Profits generated by MICs are distributed to its shareholders according to their proportional interest. The mortgages are secured primarily on real property, but can be in conjunction with other forms of security such as: personal and corporate guarantees, general security agreements, and assignments of material contracts (ie. insurance policies prepared by lawyers for the MIC). Owning shares in a mortgage investment corporation means you are investing in a company which manages a diversified and secured group of mortgages. Shares of a MIC are qualified investments under the Income Tax Act 130.1(Canada) for RRSP, RRIF, TFSA, RESP and more.
  • 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: Unlike publicly traded stocks or mutual funds, NAVPS (Net Asset Value Per Share) of the MIC does not fluctuate in response to market trends. Unless HRU MIC experiences an operating loss, the share values are always equivalent to the share issue price. This is because of the Income Tax Act (ITA) rule requiring 100% of a MIC's net income to be paid out to the shareholders by way of dividends. Secondly, HRU MIC share values are a function of the quality of mortgage portfolio. Real estate values are much less volatile than stock and bond prices. Even if the borrower defaults, the mortgage investor is protected by a collateral asset that is stable and immoveable, and risk is spread across the entire pool of investments.
  • 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. In return for this flexibility, non-bank lenders such as MICs, can charge higher interest rates on their loans (5% - 15% p.a. in the current environment).
  • 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 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. Foreign Investors will be subject to a withholding tax dependant on the tax treaties between Canada and the Investor's Resident Country. For example, Hong Kong has a Maximum 10% Tax Rate and Cayman Island has 0% Tax Rate.
  • 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.
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