Islamic Mortgages: Everything You NEED to Know, How They Work, Where to Get One and How

We get asked a lot about Islamic Mortgages, and we mean A LOT. So we created a video that will answer 95% of the questions you have, will have or will get asked.

If your question wasn't answered, ask in the comments below!

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About us
We're Ibrahim & Mohsin - ex-city lawyers and authors of "Halal Investing for Beginners". We've been studying investments and the traditional Islamic sciences for 13+ years. Over the year we've been published by the Financial Times, the World Economic Forum, Foreign Policy etc.

Today we run a sharia-compliant wealth management platform that manages over $35m in assets. We make videos about investment, personal finance, careers, and entrepreneurship.

We do this to make downtrodden communities better-off. To take people of colour, Muslims, and minorities from being among the poorest in society to the richest.

Remember, with investing, your capital is at risk. This is not financial advice. If in doubt, always talk to a financial advisor.

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TIMESTAMPS
00:00 - Introduction
00:12 - Do we know what we're talking about?
01:27 - What we're going to cover
01:57 - How do Islamic mortgages work?
07:26 - Why Islamic Mortgages are ACTUALLY Islamic
16:21 - The Real ISSUES with Islamic Mortgages
24:31 - Types of Halal Home Buying Schemes and Products
27:30 - Where to get a Halal Mortgage?
33:11 - Requirements to get an Islamic Mortgage
34:42 - Concluding thoughts

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[SuperSaf]

Jazak'Allah Khair for the deep dive! Lots of useful info.

[silentone]

3:18 All you need to check if the "islamic" financing company is doing halal or haram is the following questions:

1) Islam does not allow combining a partnership contract, with a rental contract in same contract, so will they have two separate contracts where if we stop renting (break rental contract), we still remain 20% co-owner, and rent it to someone else, since it is a partnership and co-owning contract? Shariah is clear, contracts cannot be combined into one contract in this case, so they may have no answer for this.

2) If this is a co-ownership contract, will the 'islamic' financing company also pay 80% of the repair/maintenance/govt property taxes/etc as an 80% owner while charging rent on their 80% share?
In most cases they will say, you the 'renter' or 'co-owner' (actually a lender) will pay all property taxes, maintenance for repairs, etc for all 100% of the house, not just for your share of ownership (20%) which is not what renters do anywhere, do they?

3) Late payment fees- whether little or lot, do they charge a late payment fee from the 20% co-owner? If so this is not a rental agreement, this is a loan and needs repayment, so co-ownership is merely a word used in contract but not really co-ownership, as 20% partner need not have to guarantee to become 100% unless the same contract, it is a partnership to begin with, or... a loan with guaranteed repayment with penalty for not paying on time?

4) Does the 'islamic' finance company already posses the property/owns it, for them to be able to sell or rent to us before we sign the contract? Or is our signing the contract, create the possibility to possess the property in which case, they signed a contract for a property they did not already possess, and Shariah does not permit trading or contracting in a product you do not already own/possess.

There are other deeper questions to ask, but these simple questions should be able to help even simple people like myself in evaluating based on the reply of the 'islamic finance' company.

Riba is generally understood as merely 'interest on loans' but Islamic financing and Islamic economics has strict guidelines on how contracts are setup and these details are what can make something halal, or haram, not merely replacing the word 'riba/interest' with 'fees/rent'.

[Mr.GeeKhan]

A borrower is always slave to a lender regardless of the structure and naming of that loan. You can call it a business partnership if you want but it’s not really unless you are sharing risk and reward proportionally to your investment.

[AbdulHannan-uvym]

Its the same thing as regular mortgage only difference is words you replace interest with mark up or rent which ever you like.

[IHashim]

The basic problem with “Islamic” mortgages is that the cost of the loans is still based on prevailing interest rates since Islamic banks have to borrow the money from somewhere - Islamic mortgages are a con and are not genuine risk sharing no matter how you sugar coat them with semantic gymnastics 🤡

[farukhmanzoor]

Regardless of how you phrase it or use different terminology, Islamic mortgages tend to have higher interest rates compared to conventional mortgages. In essence, the primary source of income for all banks remains the same: they lend you money, and you repay them with more money (interest).

[maxbrasil]

Islamic mortgage is an oxymoronic term no?? Anyway, IBB is a complete rip off - financially more oppressive than a standard mortgage which kind of undermines the whole purpose 🤷🏽‍♂️

[Thinker-abc]

So these 3 problems with "Islamic" Banking:

1. They don't share risk equitably, including wear and tear of the property which partners of a property would do in any other situation.

2. They don't rely local rents to the detriment of a genuine partner. If finance houses were structured differently, it'd work. Won't be as profitable but the goal here shouldn't be profit at the same level as conventional banks.

3. They also operate within the fractional reserve banking system.

I maintain all the above creates an underlying ribawi contract, using money to make money from the money itself.

It's these very reasons from a macroeconomic point of view that results in exactly the same societal outcomes as conventional mortgage lending.

You either accept conventional mortgages as being acceptable as you don't have autonomy over the loan, and nor is the riba excessive like at the time of the Prophet SWS and thus benefiting from lower lending rates OR you rent.

[BilalGarcia-fn]

Damn brother thank you for all this information. You’re awesome and I hope you get ajer for helping us brothers get houses inshallah

[Koobra-jr]

But why when you pay the mortgage the rate always change every month?? Can someone explain it to me?

[adamyafi]

Could anyone please advise on building insurance, the Islamic bank has requested their name to be on the policy alongside mine.

Any insurance provides names would be helpful.

[theabsdude]

Salaam, I think you should delve into pfida a little bit more. They have a great structure. Not only do they have complete partnership structure, they sell the property to you at the initial cost you bought it for compared to other shared ownership structures where they increase the value of the property every year. Definitely worth having a chat with the founders. Their grow your savings opportunity is amazing too!

[saidyalam]

Just loved the way you explained. Jajhakallahu khairan

[ozavisaahmed]

What I don’t understand is why Islamic mortgage providers are asking for a 20% deposit when we all know Muslims are the struggling communities in UK. I think 5-10% deposit will be reasonable if they really want to help the Muslims.

[pfidafinance]

Thanks for the mention, great video! We'd love a chat to explore this further!

[BKAYS]

Quote from the Holy Quran, Al-Baqara 2:275

ٱلَّذِينَ يَأْكُلُونَ ٱلرِّبَوٰا۟ لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ ٱلَّذِى يَتَخَبَّطُهُ ٱلشَّيْطَٰنُ مِنَ ٱلْمَسِّ ۚ ذَٰلِكَ بِأَنَّهُمْ قَالُوٓا۟ إِنَّمَا ٱلْبَيْعُ مِثْلُ ٱلرِّبَوٰا۟ ۗ وَأَحَلَّ ٱللَّهُ ٱلْبَيْعَ وَحَرَّمَ ٱلرِّبَوٰا۟ ۚ فَمَن جَآءَهُ ۥ مَوْعِظَةٌ مِّن رَّبِّهِ ۦ فَٱنتَهَىٰ فَلَهُ ۥ مَا سَلَفَ وَأَمْرُهُ ۥٓ إِلَى ٱللَّهِ ۖ وَمَنْ عَادَ فَأُو۟لَٰٓئِكَ أَصْحَٰبُ ٱلنَّارِ ۖ هُمْ فِيهَا خَٰلِدُونَ

Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein.

[Mysteriesofpolitics]

What we need is a system were you don't need to go to a lender to buy property but instead be able to pay the seller overtime without paying more for the property. That use to be the normality until interest based loans banks came into existence.

[salahelhaddad]

Is a LISA applicable with Islamic mortgages . Like if i have a LISA can it be used in buying a house with islamic mortgage ?

[Gigi-epxv]

I don’t understand much about mortgages but from what I understood the halal mortgage is working in interest as well, it just they add fixed rate on interest do do confusing what’s I really halal ir not anyone here have advise ?

[SharpKnife]

I financed my house with Guidance in 2005. After paying my mortgage payments for a few months, Guidance sold it to another bank and then I started paying to another bank. There is nothing Islamic here plus now I know that a mortgage is not like a loan. It's like buying an asset together with the bank. There is no concept of interest in that.