A Halal mortgage, also known as a Sharia-compliant mortgage, is a financial product designed for Muslim homebuyers that adheres to Islamic principles. In Islamic finance, the charging or paying of interest, known as "usury" in English, is …
A Halal mortgage, also known as a Sharia-compliant mortgage, is a financial product designed for Muslim homebuyers that adheres to Islamic principles. In Islamic finance, the charging or paying of interest, known as "usury" in English, is prohibited. Instead, Islamic finance operates on the principle of profit sharing or risk-sharing arrangements.
Here's how a Halal mortgage typically works:
Property Purchase: Instead of lending money to the homebuyer to purchase a property, the financial institution purchases the property on behalf of the homebuyer. This makes the institution the legal owner of the property.
Lease Agreement: The homebuyer then enters into a lease agreement with the financial institution, paying rent to use the property. The rental payments are structured in a way that includes a portion of the rent going towards purchasing equity in the property.
Gradual Ownership: Over time, as the homebuyer makes rental payments, they gradually acquire ownership equity in the property. Once the homebuyer has paid off the entire purchase price plus any administrative fees, they become the full owner of the property.
No Interest: Throughout this process, there is no interest charged on the financing. Instead, the financial institution earns a profit from the rental payments and potentially from the eventual sale of the property.
Regarding references to usury in the Quran, Islamic finance principles are derived from Sharia law, which includes guidelines on financial transactions. Usury, or the charging of interest, is explicitly prohibited in several verses of the Quran, such as:
Quran 2:275: "Those who devour usury will not stand except as stand one whom the Satan has driven to madness by (his) touch. That is because they say: 'Trade is just like usury,' but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The of..
