The Types of MIC Investment Risks

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September 28, 2021

A Mortgage Investment Corporation (MIC) is an investment and lending company that allows investors to invest funds in a diverse portfolio of mortgage loans. Though a skilled MIC can produce consistent dividends for their investors, no investment is without risk. As a leading MIC in British Columbia, the team at PHL Financial understands these risks and how they can affect results. That is why we have provided a list of the types of MIC investment risks to help educate investors and allow them to make an informed decision.

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5 Common MIC Investment Risks

Before making investment decisions, potential investors should understand the common MIC investment risks. The following list outlines 5 of the most common and prominent risks related to mortgage investment corporations:

1. Changes in Land Value

The value of land can fluctuate significantly over time for a variety of reasons. These can include general economic conditions, local real estate markets, competition from other properties, fluctuations in occupancy rates, and operating expenses. While an independent appraisal is often obtained before the corporation makes an investment, they are not always reflective of the true market value of the underlying property. PHL has a credit committee that reviews and approves or declines each mortgage. PHL has a proven lending track record with no loss of principal, interest or fees on any mortgage.

2. Portfolio Concentration and Composition

To ensure consistent dividends and results, it is important to choose a MIC with a diversified portfolio. For example, if the MIC only invests in residential mortgages in BC, they will be more vulnerable to economic downturns and other events. PHL has a diversified portfolio of mortgages ranging from residential, commercial, land and construction in British Columbia.

3. Sensitivity to Interest Rates

Interest rates are crucial when it comes to mortgage investments and dividends. If there is a decline in interest rates, the MIC may find it difficult to source or otherwise generate additional mortgages that can reach sufficient annual dividend targets. Through their extensive network, the MIC is able to source mortgages that fit the lending criteria, while keeping in mind their goal to preserve investor capital first and foremost. We will not chase yield and have a proven track record of historical returns.

4. Mortgage Extensions and Defaults

In some circumstances, mortgages may be renewed or extended past the initial maturity date to provide the borrower with increased repayment flexibility. In these situations, there is a risk that the accrued interest may not be paid at all, negatively impacting cash flow. Foreclosures are a part of the business, the MIC has maintained a Loan-to-Value range of 55% over the last 3 years which provides equity for foreclosed properties to pay out the MIC’s position.

5. Changes in Legislation

Federal and provincial laws will change over time. There is no guarantee that certain laws will not change in a manner that will adversely affect the MIC, its business, or fundamentally alter the tax consequences to shareholders acquiring, holding, or disposing of the Corporation’s securities. PHL is a leader in the MIC industry, with CEO Steve Ponte serving as the President of the BC MIC Managers Associations for the last 2 years spearheading many positive changes in the industry.

To learn more about our investment solutions, get in touch with a Dealing Representative at PHL Financial. We can be reached at 604-579-0849 or through our online contact form and will be happy to answer any questions you may have.