How Does Halal Mortgage Work?

1. How Does Halal Mortgage Work? Under Islamic law, traditional mortgages are considered haram (forbidden), which means that Muslims are entitled to halal (permissible) financing option when purchasing a home. This may leave you wondering what a halal mortgage is and how it works. In this article, we will tackle just that. Halal Mortgage Process Halal mortgage is not really considered a mortgage but a home purchase plan (HPP), wherein a lease agreement between the financier and buyer is put in place without charging interest. In a halal mortgage, the buyer will pay a deposit to the financier, with the deposit ranging from 5-35% of the overall price, which will be used towards purchasing the property. The financier will then buy the property on your behalf, becoming the legal

2. owner and charging monthly installments in the form of rent. A portion of the rent buyers pay will go towards buying out the property owner’s stake. Alternatively, the financier may sell the property at a higher price, which buyers will repay at a fixed amount every month. Once the term ends, buyers will have bought the property back. At times, they may have an outstanding sum left that they must settle before becoming the legal owners. Types of Halal Mortgage Options There are three major types of halal mortgages, with the Musharakah being the most common and authenticated option. It is a form of co-ownership between the financing company and the home buyer, wherein both parties will purchase the home together. The buyer will then gradually buy out the financing company’s share in the property while paying an agreed-upon fee to use part of the home owned by the financier. The second halal mortgage option is Ijara, wherein the financier purchases the property with the buyer paying rent. A certain amount of monthly payments will go to the buyer’s future ownership of the property, with the home registered under the tenant’s name once repayment is complete. Lastly, Murabaha is another model wherein the financier purchases the home to sell to the buyer on a deferred basis at an agreed-upon profit. The buyer will pay a deposit and then repay the financier over a certain period, with a profit charge in each payment. This is a resale with a deferred fee, thus differing from a home loan with interest. Both the Ijara and Murabaha are often used for commercial properties. Looking for Halal Mortgage

3. When looking for a halal mortgage, make sure that you search for banks or institutions that have proven be Shariah-compliant and have been advised by an Islamic Shariah law authority. One financial institution you can consider is Devon Islamic Finance. We are shariah-board approved and have a team of industry veterans who have the passion, experience, and expertise to help you with your halal homeownership process. Call us today to learn more about our halal financial services and how we can help you achieve your dream.