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Halal Mortgages Emerging in Canada’s Housing Market

CBC | Anis Heydari  | Dec 21, 2022

CBC islamic mortgages - Halal Mortgages Emerging in Canada's Housing MarketFinancial products are being adapted to match the unique needs of many Muslims

  • Challenge:  Like many other Muslims, Mohiuddin's religious beliefs include restrictions on paying and receiving interest. Given that a typical Canadian mortgage includes interest charges, this has added an additional challenge to his quest to stop renting and move into a house he owns.
    • "Even if the interest is very low, even if the interest rate is like 0.1 per cent, if it's more than zero per cent, then we cannot deal with conventional banks," said Mohiuddin.

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  • Halal Solutions:  Several companies in various Canadian provinces are slowly beginning to offer Islamic, or "halal" mortgages. Halal is an Arabic term that translates to "permitted" or "allowed" in English. These mortgages are deliberately structured to adhere to both Canadian law and the belief systems of many Muslims.
    • No interest but you still pay:  Financial products that avoid "riba," or interest, are not free of charge just because they are free of finance charges.  "People that get Islamic mortgages still pay a comparable amount that you would pay if you got a conventional mortgage. It's just that the structure of these mortgages are different," he said.
    • Structural differences can include the source of the loaned money, as well as legal differences. Some mortgages more closely resemble a "rent-to-own" system, where the mortgage provider is also an owner of the home. There are also legal structures where fees are charged instead of standard interest payments.
    • "Many people will look at Islamic finance and say, instead of paying interest, you're paying profits, so really it's the same thing.
    • As the market for Islamic finance is less developed in Canada, Naqvi said, finding halal and religiously acceptable sources of funding to lend out for mortgages has been difficult. This can mean costs are higher as funds are more scarce.

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  • Higher risk for lenders:  The Edmonton-based Canadian Halal Financial Corporation is also offering halal mortgages. Co-founder Thomas Lukaszuk pointed out that the risk can be higher to lenders.
    • According to Lukaszuk, his company cannot foreclose on a home due to Islamic restrictions. This can mean higher charges to mitigate that financial chance.  The risk is higher, hence the cost is higher ... and we're also dealing with a much smaller critical mass.

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