Is an Interest-Based Mortgage Permitted for the First Home?
I live with my wife and one-year-old daughter in a rented home. I have been a resident for the past 8 years and have been renting a place to live which has caused me to experience much hardship. It is because of those hardships that I wish to borrow from a bank and purchase a home.
In the city I reside in, there is no organization that will provide me a way for me to easily purchase a home in accordance with the provisions of the Shariah. I have inquired in other cities and was unable to find an organization that would assist me in purchasing a home in accordance with the provisions of the Shariah. If I finance my home through a regular bank, they will charge me interest. In other words, if I pay $2,000 a month, a certain percentage of that payment will be interest charged by the bank while the rest will be a monthly installment towards buying the house. Therefore, $400 out of the $2,000 will be interest and the remaining $1,600 will be the installments.
Can you inform me if I have any leniency in relation to the provisions of the Shariah.
Does “Dharura” (Necessity) or “Haajah” (Need) permit me to take a conventional mortage?
Despite the circumstances described in the question, it is impermissible for you to finance your home through an interest-bearing loan, as the prohibition for interest is very severe in Islam. Additionally, the excuse you have presented saying, “I don’t own a home and if I keep paying rent for the rest of my life, I will never accumulate any savings” cannot be a basis for the permissibility of an interest-bearing loan. Therefore, it is incumbent upon you to abstain from transacting in these types of loans.
However, you may use one of the following alternative methods for purchasing a home.
- The first method is the one proposed by Mufti Taqī ‘Uthmānī in his Fatāwā ‘Uthmānī. He proposed that the buyer negotiate with the bank such a contract that the bank purchases and takes possession of the house first and then sells it to the customer at a premium financed by a Zero Interest Loan. To maintain a healthy profit, the bank charges a premium higher than normal market premiums to compensate for the time-value of money. Simply put, the total value of the house and the premium are divided equally into the number of months for the period of the loan. This way, the bank maintains a steady cash flow and the customer gets possession of the house.
If this type of transaction with the bank is not plausible, another alternative is to contact Muslim businessmen and ask them to establish a union or a welfare trust, which operates as an independent entity, according to Shariah and Common Law. This trust should have stipulated by-laws and the members of the trust should be partners by way of Mudarabah, with their own funds deposited in the trust. These funds, or a good portion of them, are to be invested in different investment vehicles so the members of the trust maintain a steady profit. The rest of the funds are to be given to Muslims in need by way of diminishing partnership (This is a partnership in which the bank assumes ownership of an asset and the client pays back the bank periodically such that the payments are a hybrid of rent and share redemption). This way, the Muslims in need will be able to own a house and the Muslim businessmen will profit from the partnership.
The third alternative is that Muslims in your vicinity discharge their Zakat to the Muslims in need. The way to do this is as follows:
- If the person who wants to purchase a house is eligible to receive Zakat, the Muslims that need to discharge their Zakat can pay their Zakat by pooling together their money, purchasing the house, and giving it to someone in need. This way, the person in need will own a house and the Zakat will be payed on behalf of the payers.
- If the person who wants to purchase a house is not eligible to receive Zakat because of having sufficient wealth to establish ineligibility but not enough wealth to purchase a house, then there should be an agreement made with the seller that some payment will be made up-front and the rest a few days later. After this contract is negotiated, the person wishing to purchase a house is now in debt to the seller which would make him eligible for Zakat. Now the method in 3a can be adopted.
The fourth alternative is that if the person wishing to purchase a house is not eligible for Zakat, Muslim businessmen can pool their money together and purchase a house for him. All these businessmen will be partners in the home. Then, the home-purchaser can pay them back via the diminishing partnership model or delayed profitability models.
Please contact Ethica at email@example.com for a free consultation to bring interest-free home financing to your community.
What CIFE Graduates Say...
"The course is brilliant."
Mufti Faraz Adam, UK
"Ethica’s CIFE has already opened doors for me..."
CIFE Graduate, Esq., USA
"Ethica's tutorials are an absolute game changer. Through excellent examples they explain how Islamic banking gets done inside an Islamic bank."
Senior Associate, KPMG Advisory, UAE
"I have taken many training programs throughout my career, but this was by far the most educational, engaging, and enjoyable!"
Analyst, ADCB, UAE
Read more testimonials (here)
Haven't Experienced Ethica's Award- Winning Training Yet?
Play a video from Ethica’s award-winning CIFE program
CIFE & ACIFE graduates have likened the knowledge gained from Ethica’s certification to actually working inside an Islamic bank. Ethica puts you ahead of the curve by training you in the practical aspects of Islamic banking without overwhelming you with theory. Play one of our videos (click here) to experience the quality and depth of our training.
About Ethica Institute of Islamic Finance
Couriered to your doorstep at no extra charge, your framed certificate will handsomely adorn your office or study for years to come. Custom-mounted and framed by hand, this beautiful certificate was designed by classically-trained Islamic artists and third-party accredited to comply with AAOIFI, the world’s leading Islamic finance standard.
Ethica is trusted by more professionals for Islamic finance certification. The Institute has trained over 15,000 paying professionals in 160 financial institutions across 65 countries, winning numerous industry awards. Ethica’s 4-month Certified Islamic Finance Executive™ (CIFE™) is a globally recognized certificate accredited to comply with AAOIFI, the world's leading Islamic finance standard, and NASBA, the world’s leading Continuing Professional Education (CPE) standard. Ethica also offers Advanced CIFE™ (ACIFE™) certificates in Financial Analysis and Accounting. The award-winning certificates are delivered online or live at the bank.
Ethica's Awards in 2019
Islamic Finance Education Provider of the Year — International (ACQ5 Global Awards UK)
Best Islamic Finance Education Provider — MENA (Global Banking and Finance Review UK)
Islamic Finance Training Provider of the Year (Corporate LiveWire Global Awards UK)
Best Islamic Finance Program Online — Global (Global Business Outlook Awards UK)
Leading Global Educators in Islamic Finance (UAE Business Awards, MEA Markets UK)
Best in Islamic Finance Certifications (GCC Enterprise Awards, MEA Markets UK)
Best Islamic Finance Certification Provider — US (International Finance Magazine UK)
Islamic Finance Advisory Firm of the Year (Finance Monthly Magazine Global Awards)
Courses and Trainings — Global (Finance Monthly Magazine Global Awards)
Courses & Trainings — Adviser of the Year UAE (Finance Monthly Magazine Global Awards)
UAE Enterprise 100 (AI Global UK)
Islamic Financial Services (International Advisory Experts UK)
Leading Islamic Finance Training Services Provider — UAE (AI Global UK)
Sustained Excellence in Islamic Finance Training Solutions — UAE (Global Business Insight Awards UK)
Best Islamic Finance Certification Provider — UAE (International Business Magazine Dubai)
Finance Training CEO of the Year — Middle East (Global CEO Excellence Awards, CEO Monthly Magazine)
Best Islamic Finance Certification Specialists — Middle East (Global CEO Excellence Awards, CEO Monthly Magazine)
Gamechanger of the Year — International (ACQ5 Global Awards UK)
Niche Training Services Provider of the Year — International (ACQ5 Global Awards UK)
© 2020 Ethica Institute of Islamic Finance
2035 Sunset Lake Rd. Newark, DE 19702 United States