Canada Halal Mortgage: Empowering Muslim Homeownership

Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland of Canada declared in April 2024 that they would look into “halal mortgages” as part of the country’s government budget. A halal mortgage is one that conforms to Islamic Sharia laws regarding loans, cash, and mortgages.

Canada Halal Mortgage 

The federal government of Canada has declared its intention to investigate novel approaches to increase the accessibility of property ownership, including the introduction of alternative financial instruments for its Muslim community, such as “halal mortgages.”

In order to further comprehend how policies might meet the needs of the nation’s varied communities, Justin Trudeau’s Liberal administration has reportedly already started consulting with financial service providers, according to the federal budget. 

In federal government budget documents released on Tuesday, the government is “investigating novel approaches to broaden access” to financing options like “halal mortgages.”

The budget was vague regarding the idea, stating only that “financial services providers and diverse communities” had been consulted by the government and that a revision would be included in the fall economic statement of 2024. It was a welcome increase to the budget for the Muslim community, even though there were no details provided.

What is Halal Mortgage? 

Like other Abrahamic faiths, Islam forbids the practice of usury, or charging unreasonably high interest rates. Walid Hejazi, a professor at the Rotman School of Management at the University of Toronto, clarified to the Star that this has translated into a prohibition on interest in Islam. 

Hejazi clarified, however, that this does not imply that halal mortgages are less expensive or offer any kind of benefit. The procedure is different, but the final result is the same as with a standard mortgage. According to him, there are differences between the parties’ intentions and the mortgage’s structure.

When interest was charged during the prophet’s time, it ultimately led to people becoming enslaved, Hejazi explained. This implies that mortgage lenders cannot impose penalties especially for Islamic finance. Penalties are typically avoided by giving them to charitable organizations instead.

Instead of being subject to interest restrictions, halal mortgages incorporate interest via fees or amortized. According to Hejazi, the key is that it’s set up to exclude interest while still generating profit.

What are the Principles of Islamic finance pertaining to Halal mortgages? 

It might be hard to move houses. Muslims who are searching for financial institutions and building societies that provide halal mortgages may find the situation more stressful. Regarding Islamic mortgages, the following four major tenets of Islamic finance are relevant:

  • Riba, which is Arabic for usury or interest, is forbidden to Muslims per Sharia law. Islamic mortgages don’t require any kind of interest payments. This implies that Muslims can buy real estate and enter the housing market without violating Sharia law.
  • Ijara is a type of Islamic financing in which the bank or building society funding the acquisition of the property will acquire it and then lease it back to you for a predetermined monthly payment that has been arranged between the parties.
  • Musharakh: Joint partnerships, or musharaka, allow you and the bank to decide who owns what percentage of the property separately. The bank’s ownership of the property decreases as increasing in importance monthly installments are made, ultimately leading to the homeowner’s complete ownership. 
  • Murabaha: When the bank purchases the entire property and resells it to you at a greater price, this is known as murabaha. The homeowner avoids paying tax on the mortgage loan and the bank is able to recover its costs thanks to the higher price, which is paid back in installments.

What qualifications are needed in Canada to be eligible for a halal mortgage?

Depending on the supplier, there may be qualification restrictions for halal mortgages in Canada. Your income and credit history will probably be examined, and they might ask for an initial deposit of at least 20%. However, Halal Financial Corporation demands a 25% down payment as a minimum.  

How are Halal Mortgage Operated?

The general guideline is that you ought to contact banks or other institutions that can demonstrate that they operate in accordance with Sharia law and that they have received advice from an authority on Islamic sharia law while searching for a halal mortgage. 

The Financial Conduct Authority regulates Islamic mortgages. This implies that Muslims seeking assistance when looking for halal mortgages have protections. 

It is always essential for Muslims to conduct further due diligence on the conditions and money that are provided by the bank when searching for banks in the UK that offer halal mortgages. The conditions and procedures offered should then be compared to those of other Islamic finance lenders in the market by buyers.

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