A Saskatoon mortgage broker says the federal government's move to make it easier for Muslim Canadians to enter the real estate market by promoting halal mortgages isn't such a radical idea – it helps families buy their first home without breaking their faith .
The 2024 federal budget included plans to introduce “halal mortgages” to improve access to home ownership. Halal means “permissible” in English. The creation of this alternative financing product is a means to enable diverse communities to access the housing market.
“Under Sharia law, which most Muslims follow, it is not possible to pay interest, which obviously doesn't sit well with a mortgage or any financial product that charges interest,” Saskatoon-based broker Conrad Neufeldt told CTV News.
This poses a major obstacle for those who follow the Islamic faith, as interest rates are at the heart of Canada's mortgage and housing system.
According to Neufeldt, there are three main types of halal mortgages.
One is a rent-to-own agreement, where the lender purchases the property and then essentially transfers ownership once the rental fees are paid.
Another variant is that the house is purchased in partnership with the lender and the lender is co-owner.
According to Neufeldt, the most popular option is cost-plus financing, in which the lender buys the house and sells it back at an increased price.
“They would sell it back to you at a prescribed price. “So if the house was worth $1 million, they would buy it and sell it back to you for $1.6 million, so you wouldn’t be paying interest, you would be paying for the house at a higher price,” he says.
Neufeldt has not personally heard of halal mortgages being used in Saskatchewan, but says they are nothing new in Canada and are common in Ontario.
Canadian Bankers Association spokesperson Maggie Cheung told CTV News in an email statement that this is a way to reach more Canadians interested in home ownership.
“Canada’s banks are customer-centric businesses and continually innovate to respond to changing customer preferences. Of course, we continue to engage in discussions with governments and regulators to explore new ways to serve Canadians and better support the needs of all Canadians seeking to become homeowners.”
Neufeldt, who has been a mortgage broker for 10 years, says halal mortgages can mean higher fees and penalties overall.
“I think some people think it's free money, like the government is trying to give away free money. That is not the case at all. There is no interest on halal mortgages, but there are still costs. In fact, in most cases, halal mortgages are more expensive,” he says.
Neufeldt doesn't expect halal mortgages to take off across Canada immediately, as lenders need to work out details first.