We’re all familiar with the concept of halal food. It’s something that a lot of people take for granted, but it’s important to understand what makes food halal.
What does it mean for something to be “halal”? In many cases, this refers to meat products and other foods that are permissible according to Islamic law. Food can be considered halal if it adheres to certain guidelines in terms of how it was slaughtered or prepared (among other things).
But what about mortgages? Can these loans be considered “halal”? If so, what does this mean for Muslim homeowners who want or need to get one? Let’s take a look at some common questions about obtaining a halal Islamic mortgage.
Most Muslims cannot take out interest-based mortgages
You may be wondering, if interest isn’t allowed in Islamic law, how can I get a mortgage? This is a very good question. As it turns out, there are several ways for Muslims to take out mortgages that don’t involve paying interest.
One way is through what’s called a Murabaha loan. (Murabaha means “cost plus markup.”) With this type of loan, you’ll make a down payment of 20% or more on your home purchase and pay the remaining cost over time without interest. Instead of charging interest on the money you borrowed, the bank will add an additional markup to your loan amount—for example, $1 million/$ 200k markup = $1.2 million total price tag.
The bank then sells that property at its original selling price plus an additional markup (so they profit). Finally, they give their client (the person who used their money to buy their first house) some cash back towards closing costs or other fees associated with buying real estate; this amount depends on how much equity was left after the sale went through successfully.
There are a wide variety of halal mortgage options available.
There are a wide variety of halal mortgage options available. Some may be more suitable for you than others, depending on your situation and needs.
The following is a list of the most common types:
- Fixed-rate mortgages – this type of loan allows you to make monthly payments at one interest rate for a specified period of time (usually five years). Once that term expires, your payment amount will increase or decrease with whatever changes have occurred in interest rates since signing on to your loan.
- Adjustable rate mortgages (ARM) – this type of loan allows you to pay off your debt faster but at an increased cost per month. The interest rate increases over time as well as your monthly payment amount due to compounding interest charges built into each monthly payment cycle so long as there has been no change in circumstances such as job loss or divorce which would trigger an early cancellation clause allowing disbursement without penalty before maturity date arrives after holding onto the property longer than agreed upon timeframe stated on contract agreement signed when first beginning process getting approval securing financing starting.
Every type of halal mortgage is not right for every Muslim
Finding the right mortgage for your Muslim lifestyle is important, but it’s also important to remember that not every type of halal mortgage is right for every Muslim.
If you’re a single person with no children and a steady income, then a fixed-rate home loan may be more suitable than an interest-only option.
On the other hand, if you have many children who will be in school for the next decade or so and are planning on moving soon after getting married, then an interest-only mortgage with deferred payment options might make more sense.
Getting prequalified by getting preapproved is one step closer to buying your dream home! We’ll run through some questions about your finances and help determine whether or not you meet certain criteria.
Once we’ve determined this information together as a team—and once we know exactly how much money should go toward closing costs—we can move onto finding the right lender(s) that fit into our overall strategy.
Halal mortgages are specifically structured to conform to Islamic law
Halal mortgages are a type of financing that conforms to Islamic laws. As such, they carry specific restrictions on what is allowed in terms of the loan terms and conditions. For example, a halal mortgage will not allow for interest payments or the use of derivatives, which are permitted in conventional financing.
In order to qualify as sharia-compliant, a mortgage must comply with several rules:
- It must be based on an underlying asset (property), rather than money alone
- The lender is only entitled to repayment of the principal and no additional compensation beyond that amount
- It must be secured by some form of collateral
Hopefully, this article has given you a better understanding of how halal mortgage work and how they can help you achieve your financial goals.