Frequently Asked Questions
A mortgage investment corporation or MIC is an investment and lending company designed specifically for mortgage lending in Canada.
Owning shares in a mortgage investment corporation enables you to invest in a company which manages a diversified and secured pool of mortgages. Shares of a MIC are qualified investments under the Income Tax Act (Canada) for RRSPs, RRIFs, TFSAs, or RESPs. Profits generated by MICs are distributed to its shareholders according to their proportional interest. The mortgages are secured on real property, often 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).
There are a number of advantages in mortgage investment corporations:
First of all, Ginkgo share values do not fluctuate in response to market forces like publicly traded stocks or mutual fund unit values. Unless Ginkgo 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 an annual dividend.
Secondly, Ginkgo MIC share values are a function of the quality of the Company's mortgage portfolio. Real estate values tend to be much less volatile than stock and bond prices. Even if the borrower defaults, the mortgage investor is protected by collateral that is stable and immoveable.
In addition, Ginkgo's mortgage portfolio is considered to be stable for a number of reasons:
- Almost all of the real estate security is residential, comprised of single family, owner-occupied homes
- The maximum loan-to-value for a loan is 85% and the total loan-to-value is frequently below 80%
- Lending is diversified across the provinces
- Highly trained and experienced underwriters and management
This is a good question. A Ponzi scheme does not have a real business. It is a fraudulent investment operation that pays returns to its investors from the investor's own money or the money paid by subsequent investors, rather than from profit earned by the company's operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going.
Ginkgo is not a Ponzi scheme, as we run a solid business providing mortgages to clients. We generate real income from the collected interest of the mortgages, and distribute that interest to investors. In short, Ginkgo MIC has legitmate and profitable financial products, and therefore does not need to use any new investors' money to pay our existing investors. In addition, Ginkgo MIC is registered with Financial Services Commission of Ontario (FSCO) under the license number 12157 and is subject to an annual audit by an independent auditor.
As an investor with Ginkgo MIC, you are entitled to attend the Annual General meeting, and will receive monthly reports regarding your investment and details about the overall performance of the company.
Our business model is very similar to banks - we invest in (lend out) mortgages and collect monthly interest to pay our investors. However, Ginkgo MIC is different from banks in that we mainly lend out second mortgages; therefore, we can charge a higher interest rate and in turn give investors a higher dividend. On average, our mortgage rates range from 12% to 16% and allow investors to earn 5-9% in dividends. See Ginkgo's loan portfolio
Ginkgo typically invests in small second mortgages on residential properties. Every investment is based on a thorough investigation of the property, which includes, of course, a certified appraisal. A loan normally does not exceed 85% of the current value of the property to ensure that the initial investment will not diminish in the face of a drop in property price or other negative economic factors.
The main difference between a first and second mortgage is debt seniority.
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 the first mortgage, they are considered more risky and therefore demand a higher return.
In today's market, first mortgage interest rates often ranged from 3-5%, while second mortgage interest rates can range from 12-16%. Since we specialize in higher rate second mortgages, we can provide our investors with higher returns.
The minimum amount is $10,000, and will require the investor to have an Eligible Investor Certificate. Investors who choose to invest over $100,000 will require an Accredited Investor Certificate. Both certificates can be completed with your Exempt Market Dealer (EMD). An appointment with an EMD can also be made through us by calling us at 1-855-901-5133.
Just like a bank, we will issue a monthly report to you via e-mail to inform you of your investment's perfomance and standing.
You will also be invited to our Annual General Meeting, so you can have a better understanding of the company's performance. It is a great opportunity to also meet the staff who manage your investments, and be informed of projected economic outlooks. Therefore it is very important to provide up-to-date contact information in which we can inform you about your investment. Your personal information is held privately, only used for the regular performance of the corporation. It will not be sold to third parties.
Contrary to common beliefs, there are many reasons people borrower from Ginkgo:
- Poor credit scores
- Institutional lenders usually have a minimum beacon score policy, Ginkgo does not. However, borrowers would need to provide a reasonable explanation for the poor beacon score and Ginkgo would most likely lend at a lower LTV to balance the risk. E.g.: A borrower with a 550 beacon score because of late payments during a divorce, Ginkgo may lend up to 75% LTV instead of our maximum of 80%.
- Prior bankruptcy
- Most institutional lenders do not lend to borrowers that have a bankruptcy record that is still shown on the credit bureaus even if it is paid off. Ginkgo can lend to these borrowers but, again, at a lower LTV risk.
- Non-verifiable income
- Some borrowers have cash income wish cannot be verified through paystubs as required by institutional lenders, therefore, Ginkgo will require 6 months bank statements to confirm the income that is stated to make sure that there is sufficient cashflow to service the mortgage.
- Power of Attorney
- Institutional lenders typically do not allow for POAs, however, Ginkgo will take POAs on a case by case basis for borrowers that are in Canada but have a physical/mental limitation which requires a POA.
- High TDS/GDS ratios
- Ginkgo does not lend based on TDS/GDS ratios as long as there is an exit strategy in place and there is enough cashflow to service the mortgage.
- Purchasing a property but do not have enough funds for the down payment
- An example of this is a new build purchase. Most institutional lenders will only lend on the purchase price. The borrowers could be short by a small amount. This is when they would get a small 2nd mortgage for the shortfall. Ginkgo would lend on the appraised value of the property
- To pay off higher interest debt such as credit cards and improve their credit
- Most credit card debt is charging interest of around 20%. Ginkgoâ€™s interest rate average is around 12% so the cost of borrowing is worth it to pay off the credit debt. Once it is paid off the credit score will go up for the borrower as well, giving them a better opportunity to refinance out with an institutional lender.
- Need quick closing for purchase deals that may have been declined by institutional lenders
- The borrowers may have gotten a last-minute rejection from an institutional lender. This could be for a variety of reasons such as, missing documents, or interest rate hike and not passing the stress test, the mortgage agent could have been slow in preparing the application. The borrower would need a short-term loan for closing and then go back and reapply with the institution.
- Bridge financing
- Firm purchase and sale agreement for a purchase of one property and a sale of their existing property. Most institutions do not like to do these short-term loans because the borrower does not require a new mortgage on the property being purchased once their existing property is sold. Usually, the timing is of the sale and purchase is within a month of each other.
- Loans for investment or business
- Borrowers with enough equity in their homes may look to inject some funds into their business through the purchase of equipment or expansion. A lot of the self-employed people are looking for short term purchases for inventory and they usually pay back the principal within the year when all the inventory is sold.
- Minor renovations and flipping the property
- Contractors look for undervalued properties that require a small renovation would require a private mortgage for approximately 6 months. Once the renovations are done they can list the property for sale, because the property is not that desirable they would not be able to get funds from an institution. With a private mortgage they have more flexibility and can get out at anytime. Home owners may also want to use a private mortgage to finance their renovations as well. They would renovate the property prior to listing and selling it.