Want an interest-free mortgage? Growing numbers of Canadians have them

Have you heard of halal mortgages? They’re interest-free, and here’s how they work. Sharia law in the Muslim faith contains rules for living, including financial frameworks. One of these, riba, forbids interest as a path to profit, thus making even low mortgage loan rates usury (illegal).

Until recently, many Muslim Canadians felt forced to struggle between their conscience and the possibility of homeownership here. But such demand in the market precipitated the creation of mortgages that are ‘halal’. It means allowed or permitted.

There are two types of sharia-compliant (halal) mortgages: musharaka and murabaha.

The latter, murabaha, has the financial institution (FI) buying the home outright and selling it back to the buyer (their client) at a higher price. Profit on the trades of goods is permitted, aka halal. However, in the purchase agreement, the client gradually pays the new sum over an established number of years in monthly mortgage payments.

In a musharaka arrangement, however, the FI co-purchases the home with their client. So, the client’s name appears on the property title with the FI, but only the client occupies the home. They gradually buy the property back from the FI at a higher price over several decades. The monthly mortgage payments are amortized.

In many ways, these transactions behave like loans but exclude interest.

Imagine the potential if Canadian banks started offering halal mortgages!

Islam is the second-most reported faith among Canadians and, according to Statistics Canada, 1.8 million Canadians currently identify as Muslims. Reports vary but several sources expect another million to be resident here by 2030. And like all Canadians, these newcomers dream of owning homes.

It’s not like such potential mortgage clients aren’t profitable. A recent CBC report highlighted how halal mortgages, while interest-free, include FI charges. Yet the majority of Canadian banks still do not offer halal mortgages. They behave like interest is the only way to make banking profitable.

Currently, only three financial institutions in Canada offer halal mortgages. No wonder the market can’t keep up with the demand. What if Canada’s notoriously conservative banks offered halal mortgages? What a huge business opportunity for real estate lawyers across the country.

It’s probably just a matter of time, given Canada’s surging Muslim population. How many of those would-be homeowners who struggle with the idea of interest would jump into the market?

Are you preparing? Let us know by contacting sales@ldd.ca.