Prayer TimesA house is a basic human need, just like clothing, household items, or transportation. Some people inherit a home from their parents, while others build their own or buy a house with their own money.
Nowadays, many people purchase housing through loans or installment plans. This is because it is difficult for an average person to save up a large sum to buy a house, and the government offers effective programs to help.
However, it should be noted that Islam strictly forbids both giving and receiving money with interest. The Holy Qur'an states:
“Allah has permitted trade and forbidden usury” (Surah al-Baqarah, 275).
Therefore, a conventional mortgage is also a prohibited form of transaction. However, it is important to know that in many Islamic and secular countries, there are mortgage options that comply with Shariah.
Today, there are three types of Islamic mortgages: ijara (lease-to-own), murabaha (cost-plus sale on deferred payment), and musharaka (diminishing partnership, where the property is co-owned by the lender and the client, and profits are shared).
In Murabaha, the bank buys the property for the client and sells it to them at a markup over the original price, with payment spread over time. The final price is clear and fixed for the entire period. By paying in installments, the client purchases the house from the bank.
With ijara, the bank buys the property and enters into a leasing agreement with the client. During the lease period, all risks associated with ownership and acquisition of the property are borne by the bank.
In musharaka, the seller, client, and bank sign a tripartite agreement. Profits are distributed among the parties according to a pre-agreed share. The client then gradually buys out the bank’s share.
As mentioned above, the main feature of Islamic mortgages is that they involve a markup on the property price, but do not add interest. The markup is determined between the cost of the goods and their sale price, agreed upon in advance and fixed until the mortgage is fully paid. The bank also becomes a partner with the client, so risks are shared equally. In this system, the bank pays for registration and purchase costs of the property.
As for conventional mortgages from commercial banks, the borrower pays an initial down payment. The remaining amount is paid by the bank, and the house is pledged as collateral. The bank lends money to the client with interest. In addition, if monthly payments are late, a penalty is charged. Such transactions contradict the principles of Shariah.
Hasan Amankul,
Munara Newspaper, No. 11, 2020
This content was drafted with AI assistance and reviewed by an editor.