As Canada’s Muslim population grows, projected to reach 2.7 million by 2030 from 1.8 million in 2021, the demand for Shariah-compliant home financing options is on the rise. Halal mortgages provide Muslim Canadians with a way to achieve homeownership while adhering to Islamic principles that prohibit interest (riba). These specialized financial products address a significant market need, offering ethical and transparent alternatives to conventional mortgages. This article explores what halal mortgages are, how they work, their benefits and challenges, and how you can access them in Canada in 2025.

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What Is a Halal Mortgage?

A halal mortgage is a Shariah-compliant financing solution that avoids interest, which is forbidden in Islamic finance due to its exploitative nature. Instead of borrowing money and paying interest, halal mortgages use alternative structures such as cost-plus sales, lease-to-own agreements, or co-ownership models. These ensure that transactions are ethical, asset-backed, and aligned with Islamic values of fairness and transparency.

Unlike conventional mortgages, where the lender charges interest on a loan and uses the property as collateral, halal mortgages involve the lender and buyer in a partnership or sale-based relationship. The property serves as the foundation of the agreement, and both parties share risks and responsibilities, reflecting Islamic principles of equity.

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Key Features of Halal Mortgages

1. Interest-Free (Riba-Free): Halal mortgages eliminate interest, replacing it with a profit margin or rental fee. For example, a lender might buy a property and sell it to the buyer at a markup, or lease it with payments that contribute to ownership.
2. Risk and Profit Sharing: In models like Musharaka, the lender and buyer co-own the property, sharing both potential profits and risks, such as property value fluctuations.
3. Asset-Backed Financing: Transactions are tied to tangible assets, ensuring economic value and avoiding speculative practices.
4. Fixed Costs for Predictability: Halal mortgages often use fixed profit rates, typically ranging from 5% to 6.5%, providing stable monthly payments regardless of market fluctuations.

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Types of Halal Mortgages Available in Canada in 2025

Halal mortgages in Canada are structured in three primary ways, each designed to comply with Shariah principles while meeting the needs of homebuyers. Below are the main models available:

1. Murabaha (Cost-Plus Financing)

In a Murabaha mortgage, the financier purchases the property and sells it to the buyer at a higher price that includes a pre-agreed profit margin. The buyer repays this amount in fixed monthly installments over a set term, typically up to 25 years.

• Example: For a $500,000 home, the financier might sell it to the buyer for $600,000, with the $100,000 representing the profit margin. The buyer pays $600,000 in equal installments over 20 years.
• Key Features: Immediate ownership transfer to the buyer, predictable payments, and compliance with Shariah through a transparent profit structure.

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2. Ijara (Lease-to-Own)

Ijara operates like a rent-to-own model. The financier buys the property and leases it to the buyer, who makes monthly payments that include rent and a portion toward purchasing the property. Ownership transfers fully at the end of the lease term.

• Example: For a $500,000 property, the buyer might pay $2,000 monthly, with $1,400 as rent and $600 toward ownership. After 25 years, the buyer owns the home outright.
• Key Features: The financier retains ownership until the term ends, and payments combine rent and equity contributions.

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3. Musharaka (Partnership)

In a Musharaka model, the financier and buyer jointly purchase the property, with ownership split based on their contributions. The buyer makes monthly payments that include rent for the financier’s share and payments to buy out that share over time, typically over 10 to 15 years.

• Example: For a $500,000 home, the buyer contributes $100,000 (20%) and the financier $400,000 (80%). The buyer pays rent on the financier’s share and gradually buys it out, becoming the sole owner.
• Key Features: Shared ownership initially, with the buyer’s equity increasing over time.

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How Do Halal Mortgages Differ from Conventional Mortgages?

To understand the appeal of halal mortgages, it’s helpful to compare them to conventional mortgages:

• Conventional Mortgage: A bank lends $500,000 at an interest rate, say 4.5%, for a home purchase. The borrower repays the principal plus interest over time, with the property as collateral. If the borrower defaults, the bank can seize the home.
• Halal Mortgage (Murabaha): The financier buys a $500,000 home and sells it to the buyer for $600,000, with the $100,000 profit margin paid in fixed installments. The buyer owns the property immediately, and no interest is charged.
• Key Differences: Halal mortgages avoid interest, involve shared risk, and use asset-backed structures. They often require higher down payments (20% or more) and may not qualify for CMHC insurance, unlike conventional mortgages with down payments as low as 5%.

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Benefits of Halal Mortgages

Halal mortgages offer several advantages, particularly for Muslim Canadians seeking to align homeownership with their faith:

1. Faith-Based Compliance: They provide a way to own a home without violating Islamic principles, offering peace of mind for observant Muslims.
2. Predictable Payments: Fixed profit rates ensure stable monthly costs, unlike variable-rate conventional mortgages that fluctuate with market conditions.
3. Ethical Financing: By avoiding interest and speculative practices, halal mortgages promote fairness and transparency, aligning with Islamic values of justice.
4. Risk Sharing: Models like Musharaka distribute financial risks between the buyer and financier, fostering a sense of partnership.
5. Inclusivity: Halal mortgages are available to anyone, Muslim or non-Muslim, seeking ethical financing options.

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Challenges of Halal Mortgages

While halal mortgages are a vital option, they come with challenges that buyers should consider:

1. Higher Costs: Due to reliance on private funding and complex structures, halal mortgages often have higher profit rates (5% to 6.5% or more) compared to conventional mortgage rates (around 4% in 2025). Additional fees, such as administrative or legal costs, can also increase expenses.
2. Limited Availability: Only a few providers, such as EQRAZ, Manzil, and Canadian Halal Financial Corporation, offer halal mortgages, and they may not operate in all provinces.
3. Complex Structures: The unique models (Murabaha, Ijara, Musharaka) require more paperwork and understanding, which can be daunting for first-time buyers.
4. Tax Implications: Musharaka models may face double land transfer taxes due to shared ownership, increasing costs compared to conventional mortgages.
5. No CMHC Insurance: Halal mortgages typically require a 20% down payment since they are not eligible for government-backed mortgage insurance, which allows conventional mortgages to have lower down payments.

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Down Payment and Terms for Halal Mortgages

Halal mortgages generally require a minimum down payment of 20% to 25%, higher than the 5% minimum for some conventional mortgages. This reflects the lack of CMHC insurance and the need to reduce financial risk in Shariah-compliant structures. For example, a $500,000 home would require a $100,000 to $125,000 down payment.

Terms for halal mortgages typically range from 1 to 5 years, with fixed profit rates providing payment stability. Amortization periods, the time to fully pay off the mortgage, can extend up to 25 years for Murabaha and Ijara models, though Musharaka may have shorter periods (10 to 15 years) to minimize risk.

At the end of a term, borrowers can renew at a new profit rate based on market conditions and investor expectations. Prepayment options are often available, allowing up to 20% of the principal to be paid annually without penalty.

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Where to Access Halal Mortgages in Canada

Several institutions offer halal mortgages in Canada, each with specific products and availability:

• EQRAZ: Offers Murabaha-based mortgages nationwide, except in Quebec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland. Known for fast approvals (within 5 days) and no waitlist.
• Manzil: Provides Murabaha and Musharaka mortgages in Ontario, Alberta, and British Columbia, with plans to expand. Requires a 20% down payment and charges a 2% administrative fee.
• Canadian Halal Financial Corporation: Based in Alberta, offers Murabaha and Musharaka mortgages with quick processing (10 business days).

Additionally, Alberta has introduced a government-supported halal mortgage program in partnership with Servus Credit Union, using a Murabaha structure to provide accessible, interest-free financing.

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How to Apply for a Halal Mortgage

Securing a halal mortgage involves several steps to ensure compliance with both Shariah and Canadian regulations:

1. Research Providers: Identify reputable institutions like EQRAZ, Manzil, or Canadian Halal Financial Corporation. Verify their Shariah compliance through certifications from bodies like the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).
2. Understand Terms: Review profit rates, fees, and ownership structures. For example, EQRAZ charges a 1.5% commitment fee, while Manzil’s rates range from 5.79% to 7.29% based on term length.
3. Consult Experts: Work with a mortgage broker or Islamic finance advisor to navigate the process. Consult Shariah scholars if needed to confirm compliance.
4. Gather Documentation: Prepare proof of income, credit history (typically requiring a 700+ score), and a 20% to 25% down payment.
5. Submit Application: Apply through the provider, ensuring all financial and personal details are accurate.
6. Review Agreement: Carefully read the mortgage agreement, focusing on profit rates, repayment terms, and any penalties for late payments, which are often donated to charity to maintain Shariah compliance.

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First-Time Homebuyer Incentives and Halal Mortgages

The 2024 Canadian federal budget introduced measures to support Shariah-compliant financing, including tax incentives like land transfer tax rebates and HST rebates for first-time buyers. These can reduce costs for halal mortgage borrowers, making homeownership more accessible. For example, a first-time buyer in Ontario purchasing a $500,000 home could save up to $8,000 through the land transfer tax rebate.

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Alberta’s Halal Mortgage Program

Alberta is leading the way with a pioneering halal mortgage program launched in collaboration with Servus Credit Union and the Government of Alberta. This initiative uses a Murabaha structure, offering fixed monthly payments without interest. It aims to make homeownership more accessible for Muslim Albertans and serves as a model for potential expansion to other provinces.

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FAQs About Halal Mortgages

• What Are the Eligibility Criteria? Applicants need a minimum 20% to 25% down payment, a strong credit score (often 700+), and stable income. Properties must be owner-occupied and located in urban centers with strong resale demand.
• Are There Additional Fees? Yes, expect fees like administrative charges (e.g., Manzil’s 2% fee), legal fees ($3,000 to $4,000), and appraisal fees ($300 to $700). These are disclosed upfront for transparency.
• Are There Penalties for Late Payments? Late payment penalties are common but are often directed to charitable causes to comply with Shariah principles, unlike conventional mortgage penalties that benefit the lender.
• Are Halal Mortgages Available Nationwide? Most providers, like EQRAZ, operate in multiple provinces, but smaller regions like Prince Edward Island may have limited access. Check with providers for availability.
• Can Non-Muslims Apply? Yes, halal mortgages are open to anyone seeking ethical, interest-free financing, though higher costs may make them less appealing unless aligned with personal values.

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Conclusion

Halal mortgages offer a faith-compliant path to homeownership for Canada’s growing Muslim population, projected to reach 2.7 million by 2030. By using structures like Murabaha, Ijara, and Musharaka, these mortgages avoid interest while promoting ethical and transparent financing. While they come with higher costs and complexities, their benefits—predictable payments, risk sharing, and alignment with Islamic values, make them a compelling choice for many.

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At Coldwell Banker Horizon Realty, we understand the importance of finding a home financing solution that aligns with your values. Whether you’re exploring halal mortgages or other options, our team is here to guide you through the homebuying process with expertise and care. Contact us today to start your journey to homeownership.

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Sources: Statistics Canada (2021 Census), EQRAZ, Manzil, Canadian Halal Financial Corporation, 2024 Canadian Federal Budget.