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Managed Mortgage Investment Fund

Profiting from a Managed Mortgage Investment Fund

One of the consequences of the housing slowdown of 2008 and 2009 is that the Canadian government has tightened the rules governing the approval of mortgages. This has pushed applications and approvals down, leaving banks hurting for mortgage revenue, and it has also made financing more difficult for many people to secure, because issues with their credit scores or income histories are keeping them from getting loans they could pay off on the basis of their existing assets.

This is where the opportunity of private lending steps in. For people who can put down as little as 15 percent down for the purchase of a home, access to private lenders is a possibility. The interest rates are higher than what the banks charge, because people who are taking out private mortgages are getting turned down by the banks. It is this market that managed mortgage investment funds are looking to fill, and this is an investment niche that can be very profitable.

The mortgage investment corporation (MIC) is a business that has been set up to provide mortgage loans to people in Canada. The vast majority of these mortgages are residential, although some are construction, development, industrial and commercial. A whole group of mortgages gets placed in one pool, and that pool is pieced out in shares to investors. Pooling the mortgages together hedges against the risk that will come if an individual borrower defaults on a mortgage. In the meantime, investors can still rake in between 7 and 12 percent on an annual basis. Even if a borrower or two ends up in foreclosure, there are so many loans in the pool that the effect on profitability is negligible.

Investing in a managed mortgage investment fund is a lot like investing in any other mutual fund. You purchase shares as an investor, realizing that your purchase does not come with the same sort of government backing as a savings account, but that your reward should be higher as a result. As long as you keep your shares, you get the interest income from the mortgages (less administrative fees for the management company). If investment returns ranging from 7 to 12 percent sound like a good deal, then this might be the right investment opportunity for you. There are many MICs operating in Canada looking for an investor or two, and you can make your retirement secure by locking in this sort of profit over the long haul.

Daniel K. Akowuah | Mortgage Professional / DLG Underwriter
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