“Understanding Halal Mortgages: Interest-Free Home Financing in Canada”
The federal government is considering avenues to enhance accessibility to Islamic home financing, aiming to assist more Canadians in entering the housing market.
Outlined in the 2024 federal budget released recently, Ottawa expressed its intention to “explore new measures to expand access to alternative financing products, like halal mortgages.”
The budget highlighted ongoing consultations with financial service providers and communities to better align policies with the diverse needs of Canadians aspiring to homeownership.
According to the budget, “Canada is home to a vibrant and growing market of alternative financing products, including halal mortgages, that enable Muslim Canadians, and other diverse communities, to further participate in the housing market.”
Presently, none of Canada’s major banks offer halal mortgages, which adhere to an interest-free payment structure aligned with Islamic principles. However, some lenders in Canada have been offering halal mortgages for several years.
Caroline Thériault, a spokesperson for the Department of Finance, clarified that halal mortgages are not government of Canada products but emphasized the government’s focus on facilitating homeownership opportunities while ensuring consumer protections.
What is a halal mortgage?
A halal mortgage adheres to Islamic principles and teachings, which prohibit the payment and receipt of interest. Instead, it operates on the principle of profit-sharing.
Mohamad Sawwaf, founder and CEO of Manzil, a Canadian financial institution offering Sharia-compliant services, explained that halal mortgages are based on real asset acquisition and long-term partnership, distinguishing them from traditional mortgages.
Victor Tran, a mortgage and real estate expert, described halal mortgages as similar to traditional mortgages but with shared ownership between the lender and homeowner, structured to avoid interest charges.
Types of halal mortgages
Halal mortgages in Canada typically fall under three agreement types: Ijara, Murabaha, and Musharaka.
- Ijara functions akin to rent-to-own agreements, transitioning the inhabitant from renter to owner upon final loan payment.
- Murabaha employs a cost-plus financing structure, with the financial company owning the home and selling it to the client at a price inclusive of profit.
- Musharaka involves co-ownership between the financial company and the client, gradually transitioning to 100% ownership for the client over the mortgage term.
Financial pros and cons
Halal mortgages offer long-term fixed rates, mitigating risk and aligning with ethical principles. However, they may entail higher costs due to limited access to low-cost capital.
Exploring options
The government is exploring potential changes in tax treatment and regulatory frameworks to support halal mortgages.
Eligibility
Halal mortgages are available to all Canadians, irrespective of religious background, with typical requirements including a 20% down payment, good credit history, and sufficient income to meet payment obligations.
