Interest-free mortgages have sprung up in the Canadian housing market to enable Muslims to buy homes, according to a report Wednesday.
Islamic mortgages are necessary because Muslims are forbidden to pay interest charges.
"Even if the interest is very low, even if the interest rate is like 0.1 percent, if it's more than zero percent, then we cannot deal with conventional banks," 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 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," Walid Hejazi, an expert in Islamic finance at the University of Toronto told CBC.
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 and comply with the Islamic faith.
Zuhair Naqvi started Eqraz, a Toronto-area Islamic mortgage company. He is seeing high demand for the product.
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. As well, administrative costs are higher because demand is smaller and Islam restricts foreclosing on a mortgage, so the financial risks are increased.
Naqvi said that adds up to an additional 4% on top of what regular lenders like the Royal Bank would charge.
Still, 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 knowledgeable about halal mortgages, means costs will do down in the future, said Naqvi.
