How Do MICs Respond to Changing Interest Rates?

Why lower rates can actually boost returns for mortgage investment corporation

Canada’s inflation story keeps evolving — and with it, the Bank of Canada’s interest rate decisions. A recent Financial Post article (https://financialpost.com/news/economy/bank-of-canada-dilemma-core-inflation-heats-up)  noted that core inflation remains sticky, giving the central bank a dilemma as it weighs when and how much to cut rates. But what does all this mean for investors in mortgage investment corporations (MICs) like Blue Pearl?

Contrary to what some might assume, MICs don’t necessarily earn less when interest rates go down. In fact, the opposite can sometimes be true.

Why MIC Returns Aren’t Tied Directly to Prime Rates

MICs are private lenders, and we set our lending rates based on borrower risk, deal structure, and market demand — not simply by following the Bank of Canada’s overnight rate. At Blue Pearl MIC, for example, we focus predominantly on second mortgages, where borrowers typically pay higher interest rates due to the risk profile of being behind a first mortgage.

Because we’re lending to borrowers who may not qualify at traditional banks, our rates remain relatively stable — and higher — regardless of movements in the prime rate.

Lower Interest Rates = More Opportunity

In 2024, as the Bank of Canada signaled a pause and gradual decline in rates, we experienced a surge in mortgage applications. Lower rates typically bring more activity in the real estate market — more refinancing, more purchases, and more equity takeout's. That increased volume gives us something powerful: choice.

With more deals coming in, we were able to be more selective. That means choosing borrowers with better collateral, more equity, or stronger repayment plans. We maintained our lending requirements, such as:

• Strong equity buffers (typically 70-80% LTV maximum)

• Exit strategies like refinancing into a first mortgage or property sales

• Borrower evaluation using the 5 Cs of credit: character, capacity, capital, collateral, and conditions

• This discipline — combined with deal flow — helped us lock in better-performing mortgages.

A Record Year for Returns

In fact, 2024 was our best-performing year to date, with Blue Pearl MIC delivering an annualized return of 10.69%. While interest rates were trending down, our yields remained strong — precisely because of how our business model works.

What It Means for Investors

If you're new to private lending or MICs, it’s important to understand this key takeaway:

• Mortgage investment corporations aren’t necessarily harmed by falling interest rates — they can benefit, especially when they specialize in higher-yield lending and maintain strong credit standards.

• At Blue Pearl MIC, we’ve built our model to be responsive and adaptable — focusing on strong underwriting, risk management, and capital preservation, while still delivering competitive returns.

Disclaimer

* Past performance may not be indicative of future results. Investments in MICs are not guaranteed and carry risk. Returns are not insured. Please review our Offering Memorandum and speak with a registered dealing representative before investing.