Islamic Mortgages Hit Canadian Housing Market
For Abdullah Mohiuddin, getting into the housing market involves more than just locating the right home for the right price.
Like many other Muslims, Mohiuddin's religious beliefs include restrictions on paying and receiving interest. Given that a typical Canadian mortgage includes interest charges, this has added an additional challenge to his quest to stop renting and move into a house he owns.
"Even if the interest is very low, even if the interest rate is like 0.1 per cent, if it's more than zero per cent, then we cannot deal with conventional banks," said Mohiuddin.
While he has been searching for months, new options have begun to emerge in the Canadian mortgage market that could suit Mohiuddin's needs.
Several companies in various Canadian provinces are slowly beginning to offer Islamic, or "halal" mortgages. Halal is an Arabic term that translates to "permitted" or "allowed" in English. These mortgages are deliberately structured to adhere to both Canadian law and the belief systems of many Muslims.
No interest, but you still pay
Financial products that avoid "riba," or interest, are not free of charge just because they are free of finance charges.
Muslims looking for a halal mortgage are still going to be paying carrying costs to a financial institution for a loan to purchase their home.
"When people in Canada, in the United States heard that Islamic finance forbids interest, we in the West automatically assumed that money was for free," explained Walid Hejazi, associate professor of economic analysis and policy at the University of Toronto's Rotman School of Management.
That is not the case, says Hejazi, whose research has focused on Islamic finance products.
"People that get Islamic mortgages still pay a comparable amount that you would pay if you got a conventional mortgage. It's just that the structure of these mortgages are different," he said.
According to halal mortgage providers, structural differences can include the source of the loaned money, as well as legal differences. Some mortgages more closely resemble a "rent-to-own" system, where the mortgage provider is also an owner of the home. There are also legal structures where fees are charged instead of standard interest payments.
Even though halal mortgages still end up costing money just like a conventional mortgage, the way those charges are structured makes a big difference, according to experts such as Hejazi.
"Many people will look at Islamic finance and say, instead of paying interest, you're paying profits, so really it's the same thing. And I think that's disingenuous. … How you get to the outcome really matters, and there's many, many religions where this is the case," he said.
According to Statistics Canada, out of more than 1.7 million Muslims, more than 800,000 live in a "tenant-occupied dwelling" rather than owning the home they live in.
For companies like Canadian Halal Financial Corporation or Eqraz, that represents a sizable target market.
Source: cbc.ca
