Understanding the Differences Between Mortgage Investment Corporations (MICs) & Banks

The world of investing is full of options. Many individuals are familiar with the more traditional methods of investing, such as stocks and bonds. Alternative investing now allows investors to tap into markets that exist outside of the banks. There are many differences between these traditional investing and alternative investing methods, and with these differences come numerous institutions and companies to choose from. One such difference is between banks and Mortgage Investment Corporations (MICs). Let’s just say, the differences are many, and it’s these differences that are vital when it comes to understanding the importance of diversifying your investment portfolio. 

The main similarity between a bank and a MIC is the idea of pooling funds together to diversify the fund itself, then selling portions of the fund to investors. For now, let’s focus on the differences. 


Length of Term


Many mortgages through banks carry a term of anywhere from 15 to 30 years. This is a long time to pay off a loan and, for investors, that means smaller payments over a longer amount of time. When it comes to mortgages through a Mortgage Investment Corporation (MIC), the length of term on the loan is generally closer to 1-3 years. This also allows for flexibility to reinvest in new projects, and investor capital isn’t tied up for too long with the same projects. 


Interest Rates


To expand on the previous point related to their terms, with a difference in term lengths comes interest rate changes. 

When your investments are tied up in an in a bank-related mortgage fund, the length of the term could mean losing money over time. Interest rates can change in the markets, and the interest made on these mortgages may not as a result of fixed-rate loans. These shorter-term loans that MICs offer mean that they can capitalize more efficiently on rising interest rates and re-invest capital more readily. 


Dividend Payout


A mortgage pool managed by an MIC will often pay out dividends monthly instead of quarterly, like bank stocks. This can be of greater benefit to investors looking for a passive income stream. 


Knowledge & Focus


Generally speaking, when you choose to invest in a mortgage pool managed by a reputable MIC, you’re tapping into their knowledge. Unlike the banks that are dealing with all manner of investments and money managing topics, MICs are focused solely on the real estate sector. Any time you focus your attention into a niche market, you’re going to be more familiar and experienced than someone who has to wear many hats. 


Regulatory Differences & Flexibility


MICs don’t answer to the same regulatory agencies as banks, and because of this, they have more freedom. Banks can’t take the same risks that private corporations or investors can benefit from. This kind of flexibility allows private corporations and investments more creativity and room to pivot with market trends.   


Type of Real Estate 


The type of property or project that MICs and private mortgage funds are involved in often fall under the umbrella of real estate development or construction. This is thanks to the shorter approval times related to mortgage pools through MICs instead of banks. 

There are definitely benefits to investing in more traditional methods. Any investment portfolio is only as strong as its ability to effectively diversify while still being involved in markets for growth. Mortgage Pools are a great way to diversify your investment portfolio. To discuss mortgage pools and alternative strategies of investment, reach out to Jordan on our team today.

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