Mortgage agent warns of hidden complexities and risks associated with products
Shortly after Prime Minister Justin Trudeau announced the prospect of halal mortgages as part of the government’s housing plan, questions were raised about the practicality and implications of such loans in Canada.
Canada's large and mid-sized banks and other lending institutions should avoid offering halal mortgages at all costs, said Michael Taube, National Post columnist and former speech writer for PM Stephen Harper.
"Islamic banks obviously aren't charities. They make money in different ways. With respect to halal mortgages, it's often generated through fees under the guise of equity participation," wrote Taube, who’s also a licensed mortgage agent, explaining that borrowers may pay a percentage of profits from rental units or other sources rather than interest payments which are seen as "riba" or usury under Islamic law.
While halal mortgages based on Sharia law may be suitable for devout Muslim borrowers, they go against the basic model of Western-style banking and free market capitalism.
"Banks and lending institutions in Western democracies like Canada are supposed to offer a wide variety of mortgage options to all prospective homeowners who are unable to pay the full amount up front,” Taube said. “Every option, including open and closed mortgages, contains some sort of interest payment with the loan.
"It is possible that Halal mortgages won't be readily available in non-Muslim communities, however. Christians, Jews, Hindus, Buddhists and others don't follow the tenets of Islam and wouldn't qualify for this type of mortgage. It would be an extremely limited offering at best, which goes against the very nature of operating a bank or lending institution in a Western democracy," the author argues.
Read more: Halal mortgages: What you need to know
The column also highlighted potential risks, stating that if a major bank had to foreclose on a halal mortgage due to payment issues, "it could potentially turn into a public relations nightmare. No one would want to touch this problem with a 10-foot pole."
Taube said Trudeau's proposal is a political strategy, accusing Liberals of using the policy to gain favour with Muslim Canadian voters amid declining poll numbers.
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