Halal Mortgages: Interest-Free Home Financing in Canada

As part of the 2024 federal budget, the Canadian government has expressed interest in expanding access to alternative financing products, including halal mortgages. But what exactly is a halal mortgage, and how does it work?

What Is a Halal Mortgage?

• Halal mortgages, also known as Islamic mortgages, are designed to adhere to both Canadian law and the beliefs of many Muslims. The term “halal” translates to “permitted” or “allowed” in Arabic.
• Interest-free: Unlike conventional mortgages, which involve interest charges, halal mortgages are interest-free. This aligns with Islamic principles that prohibit paying or receiving interest (also known as “riba”).
• Carrying costs: However, halal mortgages are not completely free. Borrowers still pay carrying costs to the financial institution providing the loan. These costs replace the interest charges.
• Structural differences: Halal mortgages may have different structures. For example:
  • Some closely resemble a “rent-to-own” system, where the mortgage provider is also an owner of the home.
  • Legal structures may involve fees instead of standard interest payments.

Availability in Canada

• Currently, none of Canada’s big six banks offer halal mortgages. However, several companies in various provinces are slowly beginning to offer them.
• These mortgages enable Muslim Canadians (and other diverse communities) to participate more fully in the housing market.
• While the federal government is exploring measures to expand access to alternative financing products, including halal mortgages, it’s essential to understand that these mortgages are not entirely cost-free.

In summary, halal mortgages provide an interest-free option for home financing, but borrowers still incur carrying costs. As the Canadian market evolves, more options may become available to those seeking to align their home ownership with their religious beliefs.