Mortgages: RRSP investment

We’re into RRSP season and many of you will be looking at your investments and wondering if you have received the best return on your money. Many will wonder, too, about the security of their investments, especially if they have been invested in stocks and experienced nail-biting moments when the market has been on a roller-coaster ride.

How about an investment that has historically, not only kept its value, but also given above-average returns, and – get this – can pay monthly into your account? We’re talking mortgages here, and what’s more it’s possible to invest in Western Canadian mortgages. That’s right, the mortgages of people like your family, friends, neighbours and business partners.

How does one invest in mortgages and in a manner that’s suitable for an RRSP (and a RRIF or TFSA for that matter)? It can be done through a Mortgage Investment Corporation. What’s that I hear you asking? An MIC is a company created under the Canadian Income Tax Act whereby investors can invest in a pool of Canadian mortgages. Investors’ capital is used to fund Canadian mortgages for residential and commercial properties. Only in Canada, you say? Right, this is strictly a product of the True North, although MICs can accept money from abroad. And secure? Canadian mortgages have a default rate of 0.38 percent compared to 3.4 percent in the U.S.

MICs are subject to strict rules. For, example, they must have at least 20 shareholders with none having more than 10 percent of the capital; they must only invest in Canadian mortgages, eschew land development or construction, and – get this – distribute 100 percent of their income to shareholders as dividends. What’s more, MICs are regulated by no less than three government agencies.

So how can an investor access in an MIC, specifically one offering a pool of Western Canadian mortgages? AP Capital MIC (formerly Alta-Pacific) is almost 80 percent invested in B.C. mortgages, and almost 18 percent in Alberta mortgages. What’s the return like? AP targets a return of 8 to 11 percent annually, and although past performance is no indicator of the future, the fund has kept on target providing returns of 9.45 percent in 2012, 8.07 percent in 2013, and 8.15 percent in 2014. Not your average RRSP return.

AP differs from other MICs in that it gives you a choice of how it pays you dividends. You can choose either an 8 percent per annum dividend paid monthly, with an additional payment at the end of each year in case the annual return is over 8 percent (known as the 13th dividend). Or, you can opt to have your investment grow quicker by re-investing the dividends.

Want to know more? Give me a call.



Chuck Duerden is a Financial Consultant with Septen Financial Ltd. He is an economics graduate from University College London, and comes to Kelowna from after 13 years’ service with the Korean investment promotion agency. He can be reached at 250.575.3798 and [email protected].

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