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The 2024 federal budget says the Liberal government plans to introduce “halal mortgages” as a way to increase access to home ownership.
Here’s what a “halal mortgage” means and what that effort will look like:
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What does Canada’s 2024 budget say?
The plan talks about creating “alternative financing products, including halal mortgages” as a way to “enable Muslim Canadians, and other diverse communities, to further participate in the housing market.”
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Ottawa is “exploring” measures that could change “the tax treatment of these products” or provide “a new regulatory sandbox for financial services providers,” he said.
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The government began consultations in March 2024 with financial service providers and “diverse communities” as it moves to expand mortgage policies to include alternative finance, the budget adds. The Liberal government says it will make an announcement detailing what such a plan would look like this fall.
Why are regular mortgages not considered halal?
Islamic law, or Sharia, prohibits Muslims from charging or accepting interest because they are considered exploitative and immoral. Instead of giving loans, Islamic banks use different payment structures to avoid charging interest.
What are halal mortgages?
Sharia compliant mortgages include payment structures that take interest out of the equation. There are three common types of halal mortgages: ijara, Musharaka, and Murabaha.
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Ijara is a rent-to-own model where a bank buys the asset and leases it back to the customer over a fixed period. The payments go towards the capital and provide profit to the financial institution.
Musharaka, a type of partnership with the financier, means that both parties own the property until the equity is gradually transferred and the partnership dissolves.
Murabaha is a credit system where the ownership is sold immediately to the customer, with profit included in the final offer. The buyer’s credit history, deposit and terms of the agreement are taken into account.
Because these structures are considered riskier, they are often more expensive than a traditional interest loan. Major Canadian banks currently do not provide halal mortgages, which the Liberal government hopes to change. According to Canadian Press, the lack of halal financial options has left many Muslims waiting for smaller companies to allow them to invest and buy homes.
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