What are halal mortgages?

Halal mortgages offer Muslim Canadians a faith-compliant path to homeownership. 

With Canada’s Muslim population doubling from 2.0% in 2001 to 4.9% in 2021—and projected to reach 2.7 million by 2030—the demand for Shariah-compliant financing is surging. 

Many Muslim homebuyers face not only high home prices but also the challenge of finding financing that aligns with their religious values. As of 2022, the most recent data available, this market gap is clear: Manzil, one of Canada’s few halal mortgage providers, has over 12,000 families on its waitlist, representing $6 billion in financing needs.

While halal mortgages may involve higher costs and complexities, for many Muslims, they offer the invaluable benefits of religious compliance, ethical clarity, and expanded financial access for a growing community. 

What is a halal mortgage?

A halal mortgage is a Shariah-compliant home financing solution designed to align with Islamic principles, which prohibit the payment or receipt of interest (riba). 

It works like a rent-to-own agreement. You pay a fixed monthly amount that includes rent and a portion toward ownership. Over time, your share in the property grows until you fully own it without ever paying interest.

Here are some key aspects to a halal mortgage:

Riba-free (interest-free)

In Islamic finance, riba (interest) is strictly forbidden as it is seen as exploitative and unjust. Halal mortgages eliminate interest entirely, replacing it with profit-based or rent-based models that comply with Shariah principles. 

Instead of charging interest on a loan, lenders earn profit through alternative structures, like selling the property at a markup or sharing ownership with the buyer.

Risk and profit sharing

Halal mortgages ensure that both the lender and borrower share the risks and profits. 

For example, in a partnership model, the lender and borrower co-own the property, and the lender assumes a portion of the risk if the property’s value decreases. This shared responsibility aligns with Islamic values of equity and justice.

In a conventional mortgage, the borrower owns the property outright but uses it as collateral for the loan. If the borrower defaults, the lender can seize the property. 

Asset-backed financing

Halal financing must be tied to a tangible asset, such as real estate. This makes sure the transaction is grounded in real economic value, avoiding speculative or debt-based practices. The property itself serves as the foundation of the agreement, reflecting Islamic principles of ethical and transparent financial dealings.

Fixed mortgage costs and predictability

Halal mortgages often involve fixed profit rates, providing predictable payments. In contrast, some conventional mortgages may have variable interest rates, which can fluctuate based on market conditions, creating uncertainty for borrowers.

The profit rate replaces the conventional interest rate. It stays fixed for the length of your mortgage term. When your term ends, you can renew at a new rate that is based on current economic conditions and investor return expectations. Typically, the profit margin is between 5%–6.5% (although it varies by property value and term).

Tax and legal considerations in Canada

Halal mortgages in Canada face unique challenges, including tax laws. For instance, Musharaka—a model where the bank and customer co-own a property—may face double taxation, like land transfer tax, due to shared ownership. Conventional mortgages avoid these issues.

Related: Ask the Expert: Can the new Liberal housing plan solve Canada's housing crisis?

What are the different kinds of halal mortgages in Canada available in 2025?

There are three types of halal mortgages available for Muslim Canadians.

1. Murabaha (cost-plus financing):

In this halal mortgage model, the lender purchases the property on behalf of the buyer and then sells it to the buyer at a pre-agreed profit margin. The total cost (property price + profit) is divided into fixed monthly installments over a set term.

Example: If a house costs $500,000, the lender might sell it to the buyer for $600,000, with the $100,000 markup serving as the lender’s profit. The buyer pays the $600,000 in equal installments over 15 or 20 years.

Key features: Ownership transfers to the buyer immediately, and payments are predictable and fixed.

2. Ijara (lease-to-own)

This model operates like a rent-to-own agreement. The mortgage lender purchases the property and leases it to the buyer. Monthly payments include rent for using the property and a portion that goes toward gradually purchasing it. Ownership transfers to the buyer at the end of the lease term.

Example: The lender buys a property and leases it to the buyer for $2,000 per month. Of this, $1,500 is rent, and $500 goes toward purchasing the property. Over time, the buyer owns the property outright.

Key features: The buyer does not own the property until the lease term ends, and payments are structured to include both rent and equity.

3. Musharaka (partnership)

In this model, the lender and buyer jointly purchase the property. The buyer gradually buys out the lender’s share while paying rent for the portion they don’t own. Over time, the buyer becomes the sole owner of the property.

Example: If a property costs $500,000, the buyer and lender might each contribute $250,000. The buyer pays monthly installments that include rent for the lender’s share and payments to buy out the lender’s equity.

Key features: Ownership is shared initially, and the buyer’s equity increases over time.

Related: Buying a house? Here’s how to put in a strong offer

How much downpayment do you need for a halal mortgage?

Halal mortgages in Canada require a larger down payment compared to conventional mortgages, typically 20% of more. 

This is because of the unique structure of halal mortgages, which involve shared ownership or lease-to-own agreements. A larger down payment reduces financial risk for both the borrower and the lender and ensures compliance with Shariah principles by minimizing debt reliance.

Since halal mortgages do not involve interest, they do not qualify for government-backed mortgage insurance (e.g., CMHC insurance). This further necessitates a higher down payment to mitigate risk.

Learn more: Pre-qualified, pre-approved, approved: What do these mortgage terms really mean?

How long are halal mortgage terms?

Halal mortgages typically have fixed terms, often ranging from 1 to 5 years, similar to conventional mortgages. During this term, the profit rate remains constant, providing predictable monthly payments.

Renewal process: At the end of the term, borrowers can renew their mortgage at a new profit rate, which is adjusted based on current economic conditions and investor expectations.

Amortization periods

The total amortization period (the time it takes to fully pay off the mortgage) is generally 25 years, though this can vary depending on the provider and the borrower’s financial situation.

• Murabaha (cost-plus financing): Typically follows a standard amortization period of up to 25 years.
• Ijara (lease-to-own): Can have flexible terms, but the amortization period may extend up to 30 years in some cases.
• Musharaka (shared ownership): Often structured with shorter amortization periods, such as 10–15 years, to minimize market risks.

Related: Should you buy a house right now, or wait until interest rates come back down?

What are the benefits to getting a halal mortgage?

Halal mortgages offer an inclusive, viable solution for individuals who cannot or choose not to engage with interest-based loans, allowing them to enter homeownership without compromising their religious or ethical values. 

In addition, they also provide other benefits, such as:

• Predictable payments: Fixed profit rates provide consistent monthly payments, protecting borrowers from market interest rate fluctuations and making it easier to budget long-term. 
• No compound interest: Since halal mortgages eliminate interest, borrowers avoid the compounding effect of interest over time, which can significantly increase the total cost of a conventional loan.
• Risk sharing and responsible borrowing: Halal mortgages distribute financial risk between the lender and borrower, offering greater security. Larger down payment requirements promote financial discipline and reduce the risk of over-leveraging.
• Encouraging ethical consumer behavior: Halal mortgages discourage speculative practices, such as flipping properties for quick profits, which can contribute to housing market instability.

Related: Ask the Mortgage Expert: Why this could be your window of opportunity into Canadian real estate

Challenges and considerations when getting a halal mortgage

Halal mortgages are often viewed as catering to a niche market, which discourages larger financial institutions from investing in the development and promotion of these products. 

These mortgages are less accessible in Canada due to several key challenges.

• Higher costs: Increased administrative expenses, reliance on private funding, and profit margins in models like Murabaha lead to higher payments.
• Complex structures: Models like Musharaka and Ijara require more paperwork, understanding, and shariah compliance, adding cost and effort.
• Tax implications: Some structures, like Musharaka, may incur double land transfer taxes.
• Limited awareness: Many Canadians, including Muslims, are unaware of halal mortgage options.
• Restricted capital: Providers rely on private funding, limiting scalability and competitiveness.

Read more: Can you negotiate your mortgage?

Where to get a halal mortgage

Anyone in Canada, Muslim or non-Muslim, can apply for a halal mortgage, which is currently offered by a select few financial institutions, such as:

• EQRAZ (lends in all provinces)
• Manzil (currently lends in BC, AB and ON)
• Canadian Halal Financial Corporation

How to apply for a halal mortgage

Research Providers. Start by exploring reputable Islamic financial institutions in Canada, such as Manzil, Eqraz, or Canadian Halal Financial Corporation. Ensure the provider is Shariah-compliant and adheres to recognized standards like those set by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

Understand the terms. Carefully review the terms and conditions of the mortgage agreement. Pay attention to details like profit rates, payment structures, and ownership transfer processes.

Consult with experts. Seek advice from financial advisors or Islamic finance specialists to ensure you fully understand the implications of the mortgage and its compliance with both Shariah and Canadian laws.

FAQ: Halal mortgages in Canada

What are the eligibility criteria for a halal mortgage in Canada?

To qualify for a halal mortgage in Canada, you generally need to provide a minimum down payment of 20-25%, demonstrate a strong credit score, and have a stable income. Additionally, you must meet any requirements set by the specific lender.

Are there additional fees involved in halal mortgages?

Yes, halal mortgages may include administrative charges to cover the costs of managing late payments or other services. These fees are transparently disclosed and comply with Shariah principles.

• Manzil charges a one-time administrative fee of 2% of the financing amount at closing.
• Eqraz adds a margin of approximately 1.5% to cover costs, making their mortgages about 4% more expensive than conventional options.

Are there penalties for late payments in halal mortgages?

Yes, halal mortgages may include penalties for late payments. However, unlike conventional mortgages where late fees contribute to the lender’s profit, halal mortgages often allocate these penalties to charitable causes, in line with Islamic finance’s ethical principles.

Are halal mortgages available in all provinces in Canada?

Halal mortgages are available in most provinces across Canada. Providers like EQRAZ and Citadel Mortgages claim to offer their services nationwide. However, some providers, like Manzil, currently operate in major centers in Ontario, Alberta, and British Columbia, with plans to expand to other provinces.

Smaller provinces and territories, such as Prince Edward Island and some northern regions, may have limited or no access to halal mortgage options. It’s best to contact providers directly to confirm availability in your area.

Can first-time homebuyer incentives be used with halal mortgages?

Yes, first-time homebuyer incentives, such as land transfer tax rebates and HST rebates, can be applied to halal mortgages. The 2024 Canadian federal budget introduced measures to support Shariah-compliant financing, including tax incentives to make homeownership more affordable for first-time buyers.

Are halal mortgages eligible for CMHC insurance?

Currently, halal mortgages are not eligible for CMC insurance. This means borrowers must provide a minimum down payment of 20%, as these mortgages are considered uninsured.

Are there any government-supported halal mortgage programs?

Yes, Alberta recently launched its first halal mortgage program in collaboration with Servus Credit Union and the Government of Alberta. This initiative offers a Murabaha (cost-plus-profit) structure, providing consistent monthly payments without interest.