Islamic Mortgages explained

For many Muslims living in Britain taking out a mortgage has been a huge problem. As Islamic law forbids Muslims to pay or receive interest, it has been extremely difficult for those who follow Islam to find a mortgage. Until recent years it has only been extremely rich Muslims who have been able to buy a home outright. However in recent times many banks and building societies are recognising the problem and addressing it with unique Islamic Mortgages.

Property Advice Blog have listed a couple of Islamic mortgages which are suitable for those following the Muslim faith. Read on to discover how you can find a mortgage which is appropriate to both your faith and finances.

The Murabaha Mortgage

If you have capital in the bank and you can pay 20% of your chosen property’s value up front then the Murabaha Mortgage could be suitable for you. As soon as you pay the 20% deposit your property will be registered as your home and you can then pay the remaining debt over an agreed period of time. Like the majority of Islamic Mortgages the rate of payment is usually fixed for the repayment period. This fixed rate can be negotiated between the lender and the borrower and lasts for the full term of the mortgage.

Once you’ve chosen a house you want to buy, the bank will buy the property on your behalf and then sell it to you at a higher price. The higher price you pay is based on the property’s original price and the lender’s repayment period. The deposit you pay at the start will be deducted from the monthly repayments. Buyers should only take out the Murabaha Mortgage if they can afford a hefty deposit which should be paid on the day of purchase.

The Ijara Mortgage

Unlike the Murabaha Mortgage, the Ijara Mortgage does not require the buyer to have a large amount of capital. This mortgage is generally the more popular of the 2 Islamic Mortgages as it is slightly more flexible and it can be used to replace a previous interest mortgage. The monthly payments are typically fixed annually and the remaining balance can usually be paid early without redemption penalties.

Similar to the Murabaha Mortgage, the lender will buy the property on your behalf once you’ve agreed to a price with the vendor. However, at this point the property will belong to the lender and you will make monthly rental payments to them. You will sign a lease agreement with your lender who will expect you to make monthly contributions towards your property as well as rent.

Property Advice Blog recommends shopping around in order to find a mortgage which pertains to your religious beliefs and gives you best value for money. Speak to specialists who deal with Islamic Mortgages and gain invaluable property advice to save you money and time.