Is Islamic mortgage an option? One fundamental question that keeps running in the minds of Muslims worldwide is: Is taking out a mortgage halal or haram?
Islam has provided clear guidance for Muslims regarding how to live in all aspects. So it is no doubt that Islam has guided Muslims regarding Mortgage. As Muslims, it is essential to analyse well before making any financial decision and ensure never to compromise Islamic values.
The topic of a Mortgage can be pretty confusing to many as it is complicated. That is why in this article, we have provided the necessary information regarding everything you need to know about a traditional Mortgage. First, let us understand what a Mortgage is.
A mortgage is a type of agreement for a loan where a lender has the right to take your property if you, as a borrower, fail to repay the loan along with interest. Mortgage loans are used to purchase or maintain properties such as homes and land by securing the property.
The rates of a mortgage can vary and are based on the type of loan. Mortgage loans are available in types such as fixed rates and adjustable rates.
Many Muslim scholars and leaders consider a traditional Mortgage Haram because it involves interest, referred to as usury. When we take a mortgage as a home loan, we borrow money from a lender or a bank to buy a specific house or property. We will repay the money over a certain period.
The reason why lenders are willing to lend us the money is that we are obliged to pay interest for the money that is borrowed from them. The amount of interest that needs to be paid on a mortgage depends on the loan amount borrowed, the agreed interest rate and how quickly the loan is paid back.
Interest can also end up being a large sum of money. The reason why Muslims believe a traditional mortgage as haram is because it comes down to Riba. Riba is an Arabic term which means interest or usury. It refers to the system where a particular amount of money is given, expecting a larger return.
"O believers! Do not consume interest, multiplying it many times over. And be mindful of Allah, so you may prosper". (Quran 3:130)
As Islam forbids the action of both paying and receiving interest under the law of Sharia, Muslims are seeking alternative halal methods to purchase properties. For this reason, a system known as Islamic Mortgage is introduced specially for Muslims.
An Islamic Mortgage is different from a traditional home loan. It is compliant with the Sharia law and doesn't involve paying interest. Interestingly, non-Muslims are too interested in Islamic mortgages for their reliable system and reasonable requirements.
There are three types of Halal Islamic Mortgage alternatives to traditional Mortgages:
In the Ijara (lease) concept, an individual rents a property and makes monthly payments. This type of mortgage is known as a 'rent only' mortgage. The monthly payments are made as part rent and part capital.
In this type of mortgage, the lender buys the property for you and leases it to you for a fixed period. You make monthly payments and will own the property once the term expires.
When your lender buys the property for you and then sells it back to you for a higher price, it is known as a Murabaha (profit) Mortgage. The additional amount and total value must be paid in instalments over the mortgage term.
You may still need to place a deposit, and there is no form of rent in this type of mortgage, as the property will be yours from the very beginning.
Musharaka mortgages are the kind of mortgage where you and your lender deal through a partnership. It is a partnership, as you and your lender will own separate property shares. As you pay, you own more property shares with each payment. Eventually, you buy your lender out.
If your lender offers you an Islamic Mortgage, it will be clear which category it falls into. In all the options your lender offers, it must definitely be one of the above-mentioned three Islamic Mortgage categories: Ijara, Murabaha or Musharaka. For your mortgage to comply with the Sharia Law, your lender must be certified under Sharia compliance.
For Muslims, getting a mortgage is not only based on financial considerations but also religious values.
No matter what kind of mortgage you choose, it is important to consider the moral implications of your decisions. As a Muslim, making such financial decisions in this modern world can be difficult. For this reason, the system of Islamic mortgages has been introduced. This allows Muslims to buy properties while still being compliant with the laws of Shariah.
Islamic mortgage is a great alternative to a traditional mortgage. Look around for the perfect type of Islamic Mortgage that would work best for you and start to buy that property you always wanted. Maybe Afiyah Financial Services could help you?
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