5 Things to Know
About Halal Housing
Loan
Compatibility with Islamic
Law
Islamic financing complies with Islamic law and
prohibits riba, which means no interest. Instead,
it uses models like Ijara or Murabaha, where the
financier buys a property and sells it back at a
higher price or charges rent until full ownership
is achieved.
Sharia Compliance
This type of loan must comply with Sharia law,
which ensures fairness and transparency in all
transactions. It generally involves joint
ownership or leasing arrangements to ensure
no interest is charged. The borrower and lender
share the risk and reward and have a stake in
the transaction.
Types of Halal Mortgages
There are several types of mortgages in a Halal
housing loan, including Ijara (leasing),
Diminishing Musharak (shared ownership), and
Murabaha (resale financing). Each offers a
different approach to achieving homeownership
without interest. None of them involve paying
or receiving interest.
Asset-Based Financing
A Halal housing loan is usually asset-backed,
meaning the property itself is used as collateral.
It ensures that money is not generating more
money, which is forbidden in Islamic finance,
which prohibits interest-based transactions and
speculative investments.
No Penalties for Late
Payments
Halal mortgages typically do not impose
penalties for late payments, reflecting Islamic
principles that forbid taking advantage of
someone’s hardship. It provides borrowers with
more financial flexibility.
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