Muslims living in Canada now have access to interest-free mortgages, which will enable them to buy homes, a report said on Wednesday.
Islamic mortgages are necessary because interest charges are forbidden for Muslims.
"We cannot deal with conventional banks even if the interest is very low, even if it is 0.1 percent," Abdullah Mohiuddin told the Canadian Broadcasting Corporation (CBC).
A few companies saw an opportunity and are now offering halal, or permissible, mortgages, but it is not free money — there are carrying costs built into the loans.
"People who avail of 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," said Walid Hejazi, an expert in Islamic finance at the University of Toronto.
A popular option that conforms to the Muslim faith and Canadian law is a rent-to-own structure, where the mortgage company is also an owner of the property. Another is to create a legal framework where fees, rather than interest payments, are charged without violating Islamic principles.
Zuhair Naqvi started Eqraz, a Toronto-area Islamic mortgage company. He is seeing a high demand. However, costs are higher than traditional mortgages for several reasons. Since the market is relatively new, finding funds to lend out for halal mortgages is difficult, he said. Apart from that, administrative costs are higher because demand is smaller and Islam restricts foreclosing on a mortgage, which aggravate financial risks.
Naqvi said that adds up to an additional 4% on top of what regular lenders like the Royal Bank would charge.
"Despite this, while the market is relatively small, it is sizable. Statistics Canada reported 1.8 million Muslims live in Canada as of 2021, and slightly more than half rent rather than own. That, coupled with lenders becoming more aware of halal mortgages, means costs will do down in the future," said Naqvi.
