A halal mortgage is a Shariah-compliant home financing method that avoids charging interest (riba), which is prohibited in Islam. Unlike traditional mortgages where a bank lends money for interest, halal, or Islamic, mortgages operate through profit-sharing, co-ownership, or cost-plus financing models, such as Diminishing Musharaka, where the bank and borrower jointly own the property.
Islamic mortgages are mortgages that are compliant with Sharia law. Also known as 'halal mortgages', they differ from traditional home loans in that you don't pay interest as this is forbidden under Sharia law. Making money from money goes against Islamic finance beliefs.
Islamic mortgages can cost more than regular ones. They often come with higher admin and legal fees because the process is more complex. You might also need a bigger deposit – usually 20% or more. That means a higher upfront cost.
By avoiding speculative transactions and focusing on asset-backed financing, halal mortgages provide a transparent and ethical way for Muslim homebuyers to finance their homes. This approach not only complies with Islamic law but also promotes financial stability and fairness throughout the home financing process.
Only a few lenders in Canada offer Shariah-compliant mortgage options. These models help Muslim Canadians — and others looking for a non-interest alternative — finance a home in a way that aligns with their values.
For food to be considered Halal: It must not contain any substance classified as Haram (prohibited) under Islamic Law. It must not be processed or prepared using equipment or facilities contaminated by Haram substances.
How much deposit do you need for an Islamic mortgage? You will typically need a minimum of 20% deposit to qualify for a halal mortgage alternative. You will also need to budget for surveys, building insurance, stamp duty and any other costs, such as mortgage broker fees and legal costs.
Halal installment plans are structured according to all the necessary Shariah-compliant terms and conditions, while avoiding elements that render a contract invalid—such as usury (riba), uncertainty (gharar), and short selling.
While halal mortgages avoid interest, there might be other fees involved, such as higher profit margins or administrative costs. These costs ensure that the lending institution profits in a Shariah-compliant manner but vary between lenders.
A typical term is similar to the length of a mortgage term, at around 25 years. Over this duration, your rent reduces as your share of the property grows, hence the term diminishing, which refers to the bank's share diminishing over time. Eventually you'll own the entire property.
Types of halal mortgages
The amount of profit is based on a number of factors including your risk profile, credit history, deposit amount, the property value, and repayment term. Instead of owning the property as an individual, you hold the property title within a corporation that you set up for this purpose.
Alternatively, consider secured loans, where you pledge assets as collateral. These often come with lower interest rates and can be a good option if you have a poor credit score. Personal loans remain a viable choice if a secured loan isn't suitable.
Any loan given by Islamic banks must be interest-free. This is because in Islam, usury (charging interest) is seen as fundamentally unjust and unfair.
Fixed-rate mortgages are by far the most popular option. They are a good choice for first-time buyers and budget-conscious borrowers who value predictability in their monthly payments. Locking into a fixed-rate mortgage when interest rates are low and expected to rise can help reduce the overall costs of borrowing.
Yes, you can get a 0% interest loan, commonly found as promotional offers for cars, furniture, or credit cards, but they usually have strict terms like a high credit score requirement and a limited time period, with high retroactive interest or fees if you miss payments or don't pay in full by the deadline. True 0% APR loans are different from "deferred interest" offers where all accrued interest is charged if the balance isn't cleared by the end of the promo. Always read the fine print for details on fees, timelines, and what happens if you're late.
CDs (Certificates of Deposit)
Of course, this asset type is haram, as interest accrued is unearned.
Toronto, the heart of the Greater Toronto Area (GTA), boasts a significant Muslim population of 626,015. The city's inclusive nature shines through its diverse cultural mosaic, highlighted by many mosques and Islamic cultural events.
Costco sells some halal chicken and meat, but it's not all halal; availability varies by location, so you must look for specific halal certification labels (like a blue sticker or logo) on the packaging to be sure, as some Kirkland Signature chicken might be halal while other products (like deli or certain beef cuts) are not, even if the ingredients are individually halal.
Forbidden food substances include alcohol, pork, frog, carrion, the meat of carnivores, and animals that died due to illness, injury, stunning, poisoning, or slaughtering not in the name of God.