In the past few years, a remarkable increase in the demand for financing various products has been noticed. In Canada, halal mortgages have gained a lot of attention. The Muslim community is interested in seeking financing options that align with Islamic principles. In response to the increase in demand, the Trudeau government has announced halal mortgage availability for Muslims. We developed this guide to help you understand Halal Mortgage Canada. If you want to learn everything about halal mortgages, this guide is for you. Let’s learn the concept of halal mortgages in Canada together. We will also discuss how it works and who you can rely on for halal mortgage financing. Let’s get going.
Halal Mortgage 2024 News, Canada
Canada is a diverse country dedicated to providing equal rights for all. Acknowledge the Muslim community. The government introduced halal mortgages in the 2024 federal budget. It will ease the homeownership process and offer more financing options to Muslims. Also, they can participate in the housing market like all other Canadians. The Canadian government expanded mortgage policies after a comprehensive study and consultation in March. The plan is to include halal mortgage options for the Muslim community. The decision is highly appreciable as it will offer alternative financing to Muslims.
What is Halal Mortgage?
In Islam, taking an interest in anything is haram. Moreover, making interest payments is highly discouraged. So, the halal mortgage is a financing option for Muslims. It aligns with their religious restrictions and beliefs. With this, Muslims can make home purchases in compliance with Islamic Shariah law.
Simply put, there will be no interest payments in a halal mortgage. Islamic Sharia law prohibits interest loans. In Arabic, it is called “Riba.” So, as a Muslim, you can not take a loan where you need to make interest payments, too. Therefore, interest loans are forbidden for Muslims. Understanding halal mortgages is essential for Canadian Muslims, especially homebuyers.
With a halal mortgage, a Muslim can purchase anything without paying interest. It eliminates the interest payments without breaking Islamic Sharia or legal laws.
This concept was new for many. Also, this was both supported and criticized. However, many banks in Canada offer halal mortgages. We will disclose them, too, in this guide. Stay tuned.
To learn more, read our guide on what does halal mean.
How Halal Mortgage in Canada Works?
As we explained earlier, the borrower will not pay the interest on the halal mortgage. It is to ease the debtor’s ability to repay in time.
With high-interest rates, many debtors get stuck in the never-ending loan repayment cycle. The halal mortgage benefits both the lender and the debtor. Lenders are allowed to keep a profit rate. So, the interest rates of the halal lenders or banks will take profit rates. Keep in mind that the profit rate is not fixed. Some lenders have higher profit rates than others, depending on their reputation.
The only downside of halal mortgages in Canada is that many banks increase their profit rates with overnight interest rates. Because of this, the profit rate is sometimes higher than non-halal mortgages. The sudden increase in the rates can happen due to multiple factors. A major factor influencing profit rates is the financial risk to the lender. Mortgage foreclosure is also prohibited in Islam. So, to minimize the risk for the lenders, borrowers are allowed to pay up to an additional 4% on the halal mortgage. The extra amount should be compared with some significant banks’ regular halal mortgage rates.
Who Can Take Halal Mortgage in Canada?
Thousands of Muslims live in Canada. Does that mean all of them can take a halal mortgage? The answer is NO. To get a halal mortgage in Canada, an individual must fulfill the lenders’ criteria. For that, they will review your income to determine whether or not you will be able to pay back. Also, your credit history significantly impacts the decision of the lenders. Moreover, sometimes, you must make a 20% down payment to qualify for the mortgage.
Types of Halal Mortgage
Is anyone interested in taking a halal mortgage? You should know there are three types of transferring ownership. These are Murabaha, Ijara, and Musharaka. We will discuss all of them in a while. Remember, all three follow different structures and ownership transfer methods. Here are important details about each.
Murabaha
The property or home is immediately sold to the customer using this type of mortgage. However, lenders usually sell it at higher rates, including in terms of profit. The profit is based on various factors. These include financial risk, buyer’s credit history, deposit amount, and repayment term. However, you don’t own the property until clearing the repayment amount. In Canada, there are some variations in Murabaha. You can own the property without purchasing it from the lender. Once the payment is made, the ownership is transferred to the new buyer.
Ijara
It is another type of halal mortgage in Canada. It works on a rent-to-own scheme. The financiers and lenders buy and rent the property for fixed terms. The repayments are made in the form of rent amount. At the end of the agreement, when all payments are made, you will be transferred ownership of the property.
Musharaka
In this halal mortgage agreement, the lender and borrower own the property. You pay the rent and the amount to buy the property for a fixed period. The property will be transferred to you at the end of the agreement. In Canada, some lenders demand no additional amount. In contrast, some ask for 20% extra annually without penalty.
Where to Get a Halal Mortgage in Canada?
If you are in Canada and interested in taking a halal mortgage, it is essential to understand each type. This will enable you to better assess your requirements and financial situation. Here is a list of lenders who offer halal mortgages in Canada to Muslims:
- Canadian Halal Financial Corporation
- Eqraz
- Manzil
Conclusion
Halal mortgage in Canada is a new concept for many. However, the increasing Muslim population in Canada is one of the reasons why many are offering halal mortgages in Canada. We shared the basic concept of halal mortgage in this article. The lending process, reliable lenders, and eligibility requirements for the mortgage are also included. Our guide must have settled all your confusion. Thank you.
FAQs
Are there Islamic mortgages in Canada?
Yes, there are Islamic mortgages in Canada. However, only a few lenders currently offer halal mortgages in Canada. Canada’s central or significant banks still do not favor Islamic mortgages. Hence, they are not offering such agreements.
Is it halal to buy a house in Canada?
Buying a house in Canada is halal if you purchase it without interest payments.
Are halal mortgages permissible?
According to Islamic teachings, only halal mortgages are permissible in Islam. Any loan or mortgage where the borrower has to pay interest is considered haram in Islam.