A financing product for residential properties home ownership across Canada1

 

The Zero Mortgage Advantage:

  • No additional fees – home ownership costs are the same as conventional mortgages
    • No upfront fee
    • No fee per mortgage payment
    • No wait period
  • Client's name is listed on the title deed of the property
  • Clients have exclusive possession and use of the property in exchange for a monthly profit rate
  • Mortgages will be serviced by a major financial institution – with above standard customer service
  • Low profit rates - Current profit rates for 5 year terms are (rates can change at anytime)
  • When coupled with the CALM Cashflow option, monthly payments drop down to zero!

Clients pay a profit rate for use of the home, rather than paying for borrowed funds. Mortgage payments are allocated towards both profit payments and the financier's share of the property (principal).

1. Financing is not presently available in Quebec, but will be available in the near future.

Halal FAQ

1. How does your product work? How is Halal financing different from conventional financing?

 The main difference between Halal and conventional financing option is that Halal financing avoids interest-based transactions and uses a partnership model of financing instead of borrowing money on interest. Our model is not based on interest charged on borrowed money. We offer an Halal mortgage product through the partnership model known as musharakah. Musharakah is a partnership model whereby Zero (or partners) and a client agree to a form of shared ownership, which makes it different from an interest-based mortgage.

Rather than borrowing money for interest (which is prohibited in Islam), property is purchased with a diminishing musharakah contract, with a down payment contribution from you. Your name is on the title and you enjoy exclusive use of the property in exchange for monthly payments consisting of a Principal Amount and a Home Payment Amount. You pay a profit rate for the use of Zero’s (or partners) share, but you also make payments towards the capital sum (principal) of the property. Through this contract, Zero (or partners) reduces its equity in the asset purchased against periodical payments from you, ultimately you reach 100% Principal repayment and Zero removes itself from the property. That is why this type of contract is called a Declining Balance Partnership.

While structuring halal financing the main prohibitions we have to avoid are riba (interest), uncertainty in contractual arrangements, gambling, and profit and risk sharing obligations that directly relate to our model. While conventional financing is prohibited based on the fact that charging interest (usury) is haram, Halal finance is permitted, as Allah Ta’ala states in part of the following ayah of the Qur’an:

Those who take riba (usury or interest) will not stand but as stands the one whom the demon has driven crazy by his touch. That is because they have said: "Trading is but like riba." And Allah has permitted trading, and prohibited riba.  (Al-Baqarah 2:275)

Another difference is that conventional banks borrow money and transfer risk completely to a borrower, while in a partnership model the risk and profit is shared between the partners, in this case Zero shares the risk with the home buyer in certain instances of loss. Remember, this product is not designed as a commercial agreement whereby the buyer and seller agree to purchase the property and share the gains and losses. Rather, this product is designed so that the buyer makes monthly Principal and Home Payment amounts that reduce Zero’s (or partners) share in the property, ultimately until 100% ownership is acquired. The product is designed such that if a client takes a conventional mortgage or a halal mortgage the net cost and security will be very similar. This product meets the minimum criteria of a Musharakah; the Musharakah contract is signed and can be presented in any court.

 2. Who holds title to the house? Can I sell the house and or make improvements? Who pays property tax and insurance?

Title to the house will be in the client’s name. Yes, the client will have their name only on the title at all times. Zero (or partners) registers our equity in the house by a first charge mortgage on the title. You can sell the house and keep all the profit and make improvements that do not compromise the value of the house.

As per Halal financing guidelines, gains and profits are shared based on the percentage of ownership. In our contract we have a buy-out option where, before the sale, you can buy-out our share from the Musharakah contract. This happens right before the actual sale of the property so that you can keep all the capital gains.

You can choose to modify the house or rent a portion of the house. You do not need to ask Zero for permission as you would with other financing options available in Canada. However, if you make modifications that negatively affect the value of the house, it would be necessary for you to restore the house back to the condition it was in prior to the modification.

As with all homeowners, property taxes, insurance and maintenance will be your responsibility

3. What documents do I have to sign? Who do I make payments to? Is Zero Mortgage’s financing model new?

First, you will sign a Musharkah Agreement between yourself and Zero Mortgage. This agreement will explicitly state the monthly payment amounts in terms of a Home Payment Amount and Principal Amount. Second, you will sign documents required by Canadian law with our partner (funder). You will be making payments directly to our funding partner.

Musharakah Financing structures exist in approximately 50 countries. Our model closely resembles the product available in the USA called Guidance Residential. Scholars from both our Ethics Board and their Ethics Board overlap. Thus, our product is not a new product; rather it is a worldwide successful product that has been introduced in Canada.

4. Other Halal financing is available in Canada, how do you differ from those?

Other Halal Financing options do not provide the same level of ownership and security as our product. Title to the property, at all times, will be in the name of the client. The client can make improvements and modifications to the property without requiring consent from Zero. We do not have waiting times, membership arrangements, trust documents, extra sign up fees or added monthly fees.

Furthermore, Zero has corporate agreements whereby our partners (Funders) have agreed to adhere to Halal terms. They have agreed to not profit from late payments and to allow Zero to act as an intermediary when a client is unable to make payments. Zero is the only entity in Canada in which the funders have signed such an agreement.

 

5. Does it cost more to go with your Halal financing product than it does to go with a conventional lender? What hidden costs should I be aware of? Are there additional start-up or monthly fees?

No, it will not cost you more to go with our Halal Financing product as our rates are competitive and, in some cases, may be lower than other providers. There are no hidden costs with our products. There are no start-up fees or any other monthly fees outside the ordinary monthly payments as agreed upon.

 

6. How do you determine your profit rate? Isn’t this the same as interest?

Every action is based on intention and our intention is that we are entering into a Musharakah agreement, which does not include an interest-based transaction. We do not charge interest like conventional banks because we are not lending you money; we purchase the house as your partner. The profit rate, as is calculated and available on our website, is an amount that we have agreed to with our partners. Furthermore, Zero works diligently with its partners to provide competitive pricing with conventional mortgages, which is permissible in Islam.

Our financing partner, as a co-owner of the property purchased, charges monthly payments from you consisting of payment towards purchasing more equity in the house and profit payment for the exclusive use of the house, including the share that Zero (or partners) own. This is not the same as interest and is therefore permissible in Islam.

Zero uses the prevailing market conditions as a benchmark in order to determine competitive pricing with other products. This helps us determine the Home Payment and Profit Amounts. The Ethics Board has stated in the fatwa that given the status of Halal Banking in Canada, this is the best method available to provide competitive pricing for this product. Pricing via this method does not change the overall halal nature of product.

Let us use an example for clarity; Sultan trades in alcohol (which is haram) and Imran trades in soft drinks. Imran wants to earn the same profit as Sultan, so he charges the same rate of profit as Sultan does for his customers. One may question this approach however this method of pricing in Imran’s halal business cannot be viewed as haram, because he has simply used the rate of profit of the business of liquor as a benchmark to determine his halal business’ prices.1

1.ʻUs̲mānī, Muḥammad Taqī. An Introduction To Islamic Finance. Hague: Kluwer Law International, 2002. 82. Print.

7. How do we share profits and losses?

When you sell the house you keep all of the profits. Remember, both parties are actively involved in the property; one party cannot unilaterally sell the property at a net loss and any sale would have to be mutual and profitable. There are, however, certain instances where we would incur significant losses on the house. See the following scenarios: 

  • If the value of the property goes down below the mortgage amount – in this circumstance you can declare bankruptcy and walk away, however Zero (and its partners) would incur significant losses; and 
  • If government mandated insurance expired or the insurance company would not pay out - then Zero (and its partners) would incur significant losses. 

8. Why does the mortgage documentation from the lender use the terms “interest” and “loan”? Why is the structure this way?

Remember, Halal Banking is a relatively new concept in Canada and the terms that we use, such as Home Payment Amount and Profit Amount, are not used in current Canadian regulations. All institutions in Canada use the standard forms and lending terminology with respect to mortgage transactions. The government has yet to approve modifications to these terms to adapt to our product and others in which interest is not present. The Ethics Board issued the fatwa on our website which states that given the nature of financing in Canada, such disclosures can be used without affecting the halal nature of the product. This is not something new in Canada, the leading Halal financing company in the USA, Guidance Residential, in their fatwa allow clients to use the term interest in documentation due to USA law.

We structured the product this way in order to obtain the best pricing for clients in compliance with Canadian government requirements. Our group has already started discussions with the Canadian government to recognize alternative mortgages and to change the conventional terminology. In working with our partners we plan to bring these changes in the coming years. Your support today will help show to the Canadian government that such products are in demand and that there is a need to meet the personal requirements of all Canadians.

9. Considering that late payment fees are not permissible in Halal banking and taking advantage of someone in distress, how do you handle that?

 Administration costs are permissible for late payments. Profiting off late payments is not permissible. The financial institution has late payment fees, as do all institutions, however our partners have agreed that any amount above the administration cost generated through the collection of late payment fees will be donated to a registered Canadian charity as dictated by our Ethics Board. What happens if I am temporarily unable to make monthly payments as agreed?

We understand that unforeseen circumstances can render you temporarily unable to make monthly payments. After two missed payments you would be in technical default. Our partner, the funder, will notify us of the default and has agreed to allow us to handle resolution of the default. Our management will contact you or your family in order to determine if you are in a genuine distress situation.  We will then communicate with our Ethics Board. If you are considered to be in a distress situation, Zero will work with you to determine what can be done. Zero may help make payments on your behalf, which will have to be repaid, or in worst cases may recommend renting or selling the house.

10. How do I know your product is Halal? How often is your Ethics Board reviewing this product and how can I be sure that this is truly halal? What is AAOIFI Compliant?

Our product adheres to the minimum standard for a Musharakah Contract. The contract is between two parties and we are prepared to present ourselves in any court as a Musharakah partner.  The Musharakah contract is a legal document that can be presented in court. Reputable International Industry scholars, who also have Phds, have issued a fatwa clearly indicating that our product is Halal. To view the fatwas, please click here. Zero has made great effort to provide these fatwas from reputable international industry scholars. You may visit our website or search the Internet for the biographies of our scholars. Remember, these scholars have extensive experience in Finance and have issued these edict rulings in good faith so that Muslims in Canada can obtain halal financing as an alternative to local conventional financing. Many local scholars have also endorsed our product.

The Ethics Board will review the product on a continuous basis. You will be happy to know that the Ethics Board at the direction of Dr. Aznan Hassan will perform yearly audits and will provide any recommendations if required to help keep the product halal.

Zero wishes to abide by the highest standard. AAOIFI stands for the Accounting and Auditing Organization for Islamic Financial Institutions and is the premier international body for Islamic Finance compliance. We have adopted its Halal standards and encourage other companies in the market to do the same. AAOIFI Halal Standards state that any institution in the business of Halal Financing should have a three member independent board that sign the fatwa. Of the three members, two should be senior i.e. having experience sitting on other financial institution boards.

General FAQ

11. How does home financing work through Zero? Is your interest-free financing program open to non-Muslims?

Qualified professionals process your application. Once you fill out the application to start the process, Zero will introduce you to our partner to facilitate the credit approval process. Yes, our product is open to all Canadians.

12. Is Halal financing available throughout Canada? Is financing also available for commercial and rental properties?

Musharakah home financing is available for any residential property across Canada, except in Quebec, which will be available shortly. Please, stay updated on the changes by signing up for our newsletter. You have to live in the same house you are financing; however, you may rent a portion of the property.

We are currently working on a commercial product and would encourage you to check back with us in the near future.

13. Where do you get the money?

Zero has partnered with major Canadian institutions that have agreed to our Halal terms as dictated by our esteemed Ethics Board. We are in active discussion with international banks, ideally an Halal Bank, and hope to acquire funds so that we can enter the Canadian market in the near future.

14. Is there a maximum financing amount you will allow?

Yes, currently the maximum we can finance is $750,000. Certain exemptions exist, please contact for more information.

15. How long does the process take?

Most mortgage transfers can be completed in as little as a few days. For new home purchases, we can provide commitment letters. One useful feature that can help you determine the amount of mortgage you can qualify for is the calculator that can be found under the Resources tab on our website. Use this calculator to estimate the value of the house that you would be looking for based on your family income.

16. I currently have a mortgage with a conventional lender. Can I refinance through Zero?

Yes, we would be happy to assist you in refinancing your home through Zero. In fact, we would encourage you to get out of an interest-based loan as soon as you can in order to provide your household house with halal financing.

17. Do I qualify for home financing through Zero?

Each situation is different and the best way for us to answer this question is to have you provide details and speak to our partners. However, generally speaking, home financing is geared towards those who earn a steady income and are able to contribute to the purchase of the home by providing a down payment. If you earn a steady income but do not have the necessary down payment or do not meet all our criteria, we may still be able to offer you financing through our 100% financed product where no down payment is required. For additional details, please visit the section of our website for 3Z mortgages.

18. How much are closing costs?

It is best to ask a lawyer, however, legal fees are usually around $1,000 plus ancillary frees, and land transfer tax calculators are available online.

19. How much of a down payment do I need to provide in order to qualify for financing through Zero?

For our 100% financed product, no down payment is required. To learn more about this product, please click 3Z Mortgage.

For our musharakah home financing product, you are expected to provide at least 5% of the purchase price as down payment for the property that is less than $500,000, or minimum 10% for the property in the higher value.

In some cases, we may be able to assist those who have fewer funds (less than 20%) to put as down payment. Since each situation is different, we would encourage you to fill out our online application form, providing as many details as possible and our partner will contact you to discuss your options further.

20. Will I have to pay a fee if I pay my mortgage off faster?

Yes, the mortgage broker can provide details on this. The mortgage broker will provide this information but normally the fee would be about 15%-20%, please verify the exact amount with them.

21. Is insurance available?

As mandated by our partners, you would need to arrange for your own insurance. Our fatwa on the website allows to use conventional insurance until takaful insurance is available.

22. Do you offer financing for non-profit organizations (NPO)?

We have advised various NPOs on how to raise funds. We can arrange a conference call with members of a NPO and share how they can have members use equity in homes to pool funds for a non-profit project.

23. Are there any other benefits to financing through Zero?

We could help you turn your mortgage to zero! For more information on this exciting possibility, please click here.

Also, as an integral part of the community, we plan to donate and sponsor various initiatives. If you have a project or donation you’d like us to consider, please e-mail us at [email protected]

24. What are the regulations covering transactions through Zero Mortgage?

Zero is a referral agent. Funding will be provided through our partners. The Financial Services Commission of Ontario regulates our partners. The following link provides further information regarding regulations https://www.fsco.gov.on.ca/en/mortgage/Pages/legislation.aspx.

25. What types of Halal financing products does Zero offer?

We currently offer the following products:

  • Zero Mortgage Product (Musharakah home financing)
  • 3Z Mortgage Product
  • Mortgage transfers
  • CALM Cashflow
  • Commercial financing
  • Debt consolidation and car financing through home equity

26. I want to set up a meeting with a Zero Mortgage Product Expert. How can I do that?

Great, we are happy that you are interested in learning more about our Zero Mortgage product.

You can schedule an In Person (at our Information Office) or Skype appointment at the links below.

https://zeromortgage.acuityscheduling.com/