Wondering About Amortization in Canada? Here’s How That Works with Sharia-Compliant Financing

There’s quite a bit to learn about when you’re considering Sharia-compliant financing. Some of the terms have the same meaning whether you’re looking at traditional mortgages or ijara loans. Others like riba, only apply to the Islamic finance variety of products.

Some clients wonder about common phrases like amortization in Canada and how that works. Here are some of the important points you’ll want to consider to make a good decision.

What It Means

Amortization is all about how you apply the payments to certain types of mortgages and other loans. In some situations, the monthly payment remains the same. It goes to balance and interest. Remember, this scenario only applies to a traditional mortgage.

There’s a trust involved with Sharia-compliant financing. Everyone involved is free from both riba and Gharar.  

 Here’s some more information on how each of these systems works.

What’s Behind Ijara Home Financing?

Internationally recognized sharia scholars created this program. It complies with sharia financing guidelines. Therefore it is free of riba and Gharar.

Lease To Purchase is the name. The contracts blend ideas from traditional lending institutions and banks. This Ijara wa Iqtina contract follows three ideas.

• The idea behind this program was to build an interest-free financing product.
• The goal was to build an ijara contract upholding the obligations, duties, and rights found in more traditional home mortgages.
• As well , the idea was to retain income tax deductibility.

A person decides on a property that the individual trust holds the title to. This arrangement can go on for up to 30 years depending on individual preferences. The lessee pays a monthly rent to the trust. The lessee gets the title for one dollar at the end of the lease.

Read on to find out how this sharia-compliant financing system compares with more traditional amortization methods.

Looking At The Schedule

The best way to understand how amortization works is to take a good look at a schedule or table. For more traditional loans, the schedule dictates how much of your payments go to the principal and how much goes to interest on the loan.

There are three different parts to look at:

• The repayments are monthly. That’s for the entire loan.
• The principal repayment is listed. This is the part that pays off the debt after the interest is charged.
• The interest expenses are detailed in these more traditional methods.

Interested in learning more about our Sharia-compliant financing program? Get in touch today. Don’t forget to look for us on your favorite social media channel.