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What are Islamic mortgages? |
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UK -
Islamic Mortgages
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Source: Shariabanking.net
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Sunday, 04 June 2006 |
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For Muslims who want to buy a home,
conventional mortgages have always been something of an obstacle in
light of the principles of Shariah law. Shariah prohibits the use of
‘Riba’ (interest). Conventional mortgages involve the house buyer
borrowing the money and paying it back with some interest charged on
top....
Until recently, Muslims have had to
compromise and use traditional western products for their savings and
property purchases. But providers are now coming up with
Muslim-friendly home financing solutions.
Many
Islamic mortgages, referred to as ‘home finance’, work by using the
Shariah principles of Ijara with Diminishing Musharaka. Ijara is a form
of leasing deal, and Diminishing Musharaka is a joint ownership between
you and your lender.
In
practice it works like this: your bank buys the property you want; you
then pay the price of the house in monthly installments, plus a rental
payment, for around 25 years. With each payment your share of the
property increases while your bank’s percentage decreases. At the
end of the leasing period, the bank transfers the title deeds of the
property to your name and the property is yours.
There are also Murabaha mortgages, where on the day of completion you immediately buy the property back at a higher price.
It
is not just the process of buying your home that must be
Shariah-compliant; the money used by your lender to purchase the
property should come from permissible sources only. Money linked to the
tobacco, alcohol, gambling, pornography and non-Halal meat industries
is prohibited.
Islamic
home financing deals tend to cost slightly more in the long term than
standard mortgages, but most strict Muslims are willing to make this
sacrifice so they can adhere to Shariah law. Deposits are often higher
too – sometimes 30 per cent compared with a mainstream 5-10 per
cent – but it could be argued that a larger down-payment will
decrease your costs over time. |
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Last Updated ( Sunday, 07 January 2007 )
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