Halal mortgages in federal budget about 'being equal' for Muslims, providers say

Federal budget references to mortgage products aimed atCanadian Muslims have members of thecommunity celebrating, along with the mortgage providers that look to serve them, despite a lack of detail from the government on what is to come.

In Tuesday's budget documents, the federal government indicated that it's "exploring new measures to expand access" to financing methods such as "halalmortgages."

The budget provided few details about the plan, other than to say the government had been consulting "financial services providers and diverse communities" and that an update would come in the 2024 fall economic statement. Despite no specifics, it was a welcome additiontothe budget for the Muslim community.

"It was very happy news for me," saidAbdullah Mohiuddin, who has already taken out an Islamic, or halal,mortgage to purchase a home in the Edmonton area. He said he welcomed the government's announcement that it would be finding a way to increase access to a financial product he believes his community needs.

Several firmsin various Canadian provinces offer halalmortgages. Halal is an Arabic wordthat translates in English to "permitted" or "allowed" under Islamic law.

These mortgages are deliberately structured to adhere to both Canadian law and the belief systems of many Muslims. Interest, which is referred to in many Islamic texts as"riba," is forbidden.

Although interest isn't charged, there are still costsassociated with halal mortgages.In many cases, the costs are higher than those associated with conventionalmortgages,and the mortgages are often not available at the branches of mainstream financial institutions.

"It seems like it's a little bit expensive," Mohiuddin said, adding he believesthe lack of established legal definitions for a halal mortgage in Canada is behind the higher costs.

Announcement boosts credibility

Muslims looking for a halal mortgage are still going to be paying carrying costsfor a loan to purchase their home.

Providers in the industry said these costs can be higher because while there is demand, there are fewer providers and some halal mortgage providers are unable to foreclose due to religious restrictions, which can increase what some financiers assess as risk.

That could be changing with the federal announcement, say executives with Islamic mortgage provider EqrazInc., based in Oakville, Ont. The companyhas saidthere's already a positive impact just from the five sentences in the federal budgetregarding halal mortgages.

"I'm already seeing traction in our favour," said ZuhairNaqvi, the firm'sfounder and CEO, adding he believesthat a mention in high-profile federal policies leads to credibility.

"It allows me to go to the banks and the lenders and powers that be and tell them, 'Look, guys, the government is supporting this, so please don't be worried or anxious about participating in this,'" Naqvi said.

Mortgage providers who have worked with Eqrazecho his sentiment. "With the federal government coming in, this really encourages myself and excites me. And my phone is ringing off the hook," said Naveed Malik, a mortgage agent with Dominion Lending Centres.

Naqvisaid this is not about elevating Islamic mortgages above non-religious financial productsor thosethat target members of other faiths.

"Halal mortgages do not provide a privilege to us," Naqvisaid, addingit's about "being equal to non-Muslims."

Fewer providers, higher costs

Maliksaid he estimates that the cost of halal mortgages is currently about fourper cent higher than a conventional mortgage.

Islamic mortgage companieshave previouslyspeculated that with wider availability, costs could drop as more providers compete for business, and risk is lessened with a wider pool of lenders.

Manyof the discrepanciesin costare due towhat Islamic finance experts and industry players say are not just legal differencesbut basic structural anomaliesin the mortgage.

Some types of arrangementsmore closely resemble a"rent-to-own" system, where the mortgage provider is also an owner of the home.

There are also some agreementswhere fees are charged instead of standard interest payments.

However, thelack of legal definitions specific to the interest-free nature of Islamic mortgages has often meant many mortgage insurance providers do not insure them in particular because each halalprovider may structure their mortgage differently, and uninsured mortgages can sometimes be more expensive.

WATCH | Most halal mortgages need religious approval:

Halal mortgages help fill the gap for Muslim homebuyers

2 years ago

Duration 2:15

For some Muslims, religious beliefs that restrict paying and receiving interest mean a traditional mortgage is off the table. To fill the gap, halal mortgages are hitting the Canadian housing market that are interest-free, but not without charges.

A2010 report for the Canada Mortgage and Housing Corporationsaid Islamic financial products should not "present any particular difficulties" under Canadian accounting standards, but years later they are still far from widespread.

There have beenlegal issues, such as who is registered on land titlesand whether a rent-to-own contract is subject to landlord and tenant legislation in various provinces.