Exempt Market Mortgage Investments: How Offering Memorandums Work

Most investors buy stocks, bonds and mutual funds that were sold to the public with a prospectus. Mortgage investment corporations (MICs), private mortgage funds and syndicated mortgages are usually sold another way, through the exempt market. An exempt market mortgage investment comes with a different disclosure document, a different kind of dealer and different limits on who can buy and how much. This guide explains how that market works, what an offering memorandum contains and what to check. It is current as of October 2026, and it is general education, not investment or legal advice.

What is an exempt market security?

An exempt market security is a security sold without a prospectus, under an exemption from the prospectus requirement in securities law. A prospectus is the full disclosure document that a securities regulator reviews before securities are offered to the general public.

In mortgage investing, exempt market securities include MIC shares, units of private mortgage funds and trusts, and interests in syndicated mortgages. “Exempt” refers only to the prospectus. The investment is still subject to securities law: the seller must be registered or rely on a registration exemption, the investor must qualify under the exemption being used, and the issuer is responsible for what its disclosure says.

Prospectus exemptions for mortgage investments

National Instrument 45-106 Prospectus Exemptions (NI 45-106) sets out the exemptions. MIC shares are usually sold under one of two: the offering memorandum exemption or the accredited investor exemption.

The table compares them for individual investors. Basis of comparison: who can buy, what disclosure the exemption itself requires, and how much an individual can invest.

In summary, an individual is an accredited investor with financial assets over $1,000,000 (alone or with a spouse) net of related liabilities; net income before tax over $200,000, or over $300,000 combined with a spouse, in each of the two most recent years with a reasonable expectation of the same this year; or net assets of at least $5,000,000. An eligible investor, a defined term rather than a separate exemption, has net assets over $400,000 (alone or with a spouse), or net income before tax over $75,000, or $125,000 combined with a spouse, in each of the two most recent years with the same expectation this year, or advice from an eligibility adviser (rules vary). Thresholds are summarised; confirm current definitions with a registered dealer.

NI 45-106 contains other exemptions as well, each with its own conditions. For syndicated mortgages, two that used to be available, the private issuer and “mortgages” exemptions, were withdrawn by amendments that took effect on 1 March 2021 (1 July 2021 in Ontario and Québec). Syndicated mortgage rules after the 2021 reforms covers that change.

How the offering memorandum exemption works for mortgage investments

Under the offering memorandum exemption, the issuer gives each investor an offering memorandum (OM), a disclosure document describing the business, its risks and its finances, before the investor subscribes. Individuals in the six provinces listed above are subject to the investment limits, and a risk acknowledgement form is signed where the exemption requires one.

An OM for a MIC typically covers:

• The business and lending policy: what kinds of mortgages it makes, in which provinces, at what loan-to-value and in which positions.
• Management and related parties: who runs it, how they are paid and which affiliated companies earn fees.
• Fees and costs: management fees, lender and administration fees, and any dealer compensation.
• Financial statements: ideally audited, with the auditor’s report.
• Risk factors: the specific ways an investor can lose money.
• Redemption terms: notice periods, any early-redemption charges, and the board’s power to defer or suspend.
• Purchaser’s rights: what the investor can do if the OM contains a misrepresentation, and any right to cancel.

For syndicated mortgages sold under the OM exemption, the 2021 amendments also added appraisal requirements. As one example of an issuer using an OM, Lendmax Capital MIC distributes its shares under prospectus exemptions through a registered exempt market dealer, with an OM that includes audited financial statements and risk factors.

An OM is not a prospectus. No securities regulator approves the investment or vouches for the accuracy of the OM before it is used, so the document is only as useful as the reading it gets.

What an exempt market dealer does

An exempt market dealer (EMD) is a firm registered with provincial securities regulators in a category used to distribute securities sold under prospectus exemptions. For a mortgage investment, the EMD is usually the investor’s point of contact and the party responsible for checking that the purchase fits the rules and the investor.

Before a subscription, the EMD:

• collects know-your-client information about the investor’s finances, objectives and risk tolerance;
• assesses whether the investment is suitable for that investor;
• confirms which exemption applies and any investment limit;
• delivers the OM and collects the subscription documents, including any risk acknowledgement form.

Two questions are worth asking any dealer. Is the firm, and the individual, registered? The CSA’s National Registration Search answers that. And how is the dealer paid for this sale, and does it have any relationship with the issuer? The answer belongs in the OM or the dealer’s disclosure.

Exempt market and prospectus offerings compared

Neither route is better in itself; each trades something away. The table sets them side by side. Basis of comparison: what an individual investor gets and gives up.

Both routes share the same bottom line on risk: neither makes an investment guaranteed, and MIC shares are not deposits and are not covered by CDIC deposit insurance.

What the limits and fees look like in practice

The investment limit decides how much can go in; the fee section of the OM decides how much of the portfolio’s earnings comes out. Both are easier to see with numbers.

Worked example (illustrative)

The figures are hypothetical round numbers, not market data or a forecast.

An Ontario investor wants to put $15,000 into a MIC under the OM exemption.

• If she is not an eligible investor, the limit is $10,000 in 12 months, so she can invest $10,000.
• If her net income was $80,000 in each of the last two years and she expects the same this year, she is an eligible investor ($80,000 is over $75,000), and the limit is $30,000, so the full $15,000 fits.

Take the $10,000 case. Suppose the MIC’s mortgages earn an assumed 10% gross, and management fees and operating costs take an assumed 2%, leaving an 8% net distribution. She receives $10,000 × 8% = $800 a year, or $200 a quarter. MIC dividends are taxed as interest, so at an assumed 30% marginal rate she pays $240 and keeps $560. Tax treatment is stated as at October 2026; confirm your own position with a Canadian tax professional.

The fee line is the one most often skipped: the gap between 10% and 8% is set out in the OM’s fee section. Higher yields come with higher risk. Mortgage investments are not guaranteed; returns are targets, not promises, and principal can be lost.

What to check in an offering memorandum

Each item names where to find it. Reading a MIC’s financial statements and offering memorandum goes through them in depth, and how to evaluate a MIC puts them in order.

• Loan portfolio by position, region, loan-to-value and term — the OM’s business section and the notes to the financial statements.
• Audit — the auditor’s report attached to the financial statements.
• Fees, and who receives them — the OM’s compensation and related-party sections.
• Arrears, impairments and properties taken back — notes to the audited financial statements.
• Redemption terms — the OM and the MIC’s articles; see liquidity and redemption.
• Distribution history — the OM, with the period stated; past performance does not indicate future results.
• Risk factors — the OM’s risk section, read in full.
• Purchaser’s rights — the OM’s rights section.
• The dealer’s registration — the CSA National Registration Search.

Common mistakes in the exempt market

These come up repeatedly in investor questions about exempt offerings.

• Reading “exempt” as “unregulated”. Registration, disclosure and exemption rules all still apply.
• Treating the OM as approved. It is the issuer’s document, not the regulator’s endorsement.
• Skipping the risk factors and financial statements in favour of the summary page.
• Not checking registration of the dealer and the individual.
• Assuming each offering has its own limit. Ask the dealer how purchases under the OM exemption from different issuers count toward the 12-month limit.
• Assuming money can be withdrawn on request. Redemptions follow the issuer’s terms.

What this means for a mortgage investor

An exempt market mortgage investment trades the regulatory review of a prospectus for access to private mortgage assets, with the offering memorandum and a registered dealer’s review taking its place. The exemption decides who can buy and how much; it does not decide whether the investment is sound or suitable. That still depends on the borrower, the property, the loan-to-value, the security position, the term, the jurisdiction and the investment structure, all of which a good OM should let an investor assess. This guide is current as of October 2026.