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The Government of Canada recently announced its intention to explore the concept of offering Halal/Islamic Mortgages as part of its budgetary plans. In this article, we delve into the details of this concept and interpret the mechanisms through which this notion could be made available, aiming to provide clarity, and understanding for our readers.

In the realm of real estate financing, the concept of Halal mortgages has emerged as a compelling alternative for individuals seeking to honor their Islamic beliefs while securing homeownership. Embedded in the principles of Sharia law, Halal mortgages scrap the payment of interest (rib’aa), offering a solution that resonates with the religious beliefs of many. The absence of interest, as mandated by Sharia law, ensures that these financing solutions align with the ethical principles of Islam.

In Canada, privately offered Halal mortgages are offered through the following vehicles, designed to adhere to Islamic principles while facilitating the purchase of property:

• Murabaha: This model involves an Islamic financial institution purchasing the property and subsequently selling it to the client at a markup, inclusive of a profit margin. The absence of interest underscores its adherence to Halal standards, offering a sale-based transaction approach.
• Ijara: In this arrangement, a trust entity acquires the property and leases it to the client. Over time, the client transitions from tenant to owner, culminating in full ownership upon completion of the loan terms. It is a rent-to-own scenario that provides an alternative route to homeownership.
• Musharaka: Under this framework, both the Islamic financial institution and the client become co-owners of the property. As repayments progress, the institution’s ownership stake gradually diminishes

These diverse modalities offer viable pathways for individuals seeking to fulfill their homeownership aspirations while remaining faithful to their Islamic beliefs. One of the key advantages of Halal mortgages lies in the provision of long-term fixed mortgage rates. With durations extending up to 25 years, borrowers benefit from stability and predictability in their financial commitments. A buy-and-sell structure, combined with lenders’ willingness to share in long-term risks, enhances the appeal of Halal mortgages among prospective homeowners.

However, it is essential to acknowledge the cost implications associated with Halal mortgages. Due to constraints on accessing low-cost capital, borrowers may encounter higher overall costs and fees compared to traditional mortgage options. While Halal mortgages offer a compelling avenue for advocates seeking financial products aligned with Islamic beliefs, the elevated costs may render this option financially impractical for some individuals.

In conclusion, Halal mortgages represent a significant stride towards accommodating the diverse needs of individuals within the Islamic community. By providing financing solutions that uphold Islamic principles while facilitating homeownership, Halal mortgages serve as a testament to the compatibility of religious beliefs with contemporary financial practices.

The lawyers at Kormans LLP are here to assist you with any questions that you may have regarding what we discussed in this blog, or any other matter where we can be of assistance. Please feel free to reach out to our office at (905) 270-6660 or by email at info@kormans.ca.

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M. W. Faizan is an Associate Lawyer at Kormans LLP. You can reach M. W. Faizan here: mwfaizan@kormans.ca.

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