An Islamic mortgage may just be about semantics.
Islam religion forbids followers from paying interest in financial matters, which restricts observers of the Muslim rule from taking out a mortgage.
In Manitoba, where an estimated 13,000 Muslims live, the provincial-based Assiniboine Credit Union consulted with Islamic scholars to introduce Canada’s first Islamic mortgage earlier this year. Under this financing, a Muslim home purchaser and the credit union each contribute to buying a house and each has ownership in the property. A contract is drafted where the family buys the credit union’s share over an agreed period of time.
The Muslim family has exclusive rights to live in the home, and during the contract term pays the credit union a “profit.” The amount is comparable to what a credit union member with a standard mortgage would pay in interest for a best rate mortgage.
Though the two sound similar, the difference is important to Islam religious observers.
“The main issue is that trade is permissible in Islam but usury or interest isn’t,” said Omar Kalair, founder of Toronto-based UM Financial, Canada’s premier Islamic financial institution. “So how we structure our mortgage is on a trade concept,” which is what Assiniboine Credit Union has done also.