Islamic Remortgages
With some two million Muslims living in Britain today, the banking and financial services sector is adapting and diversifying to fill these potential customers' needs. One service now being offered to observant Muslim homeowners is the Islamic remortgage.
Sharia law - law based on the teachings of the Qur'an - prohibits all forms of usury. This means money cannot be used to make money, and forbids engaging in a traditional UK mortgage - which loans money on interest to buy property.
However, few can buy property outright due to its very high cost. The solution to this is the Islamic mortgage - a different form of borrowing that avoids interest-based payments. Wthin Islamic finance there are three different kinds of lending that are most often used for mortgages - Ijara, Ijara wa Iqtina and Murabaha. At Grovelawn we do not offer any advice orservices relating to Islamic Mortgages but would suggest you try www.islamicmortgages.co.uk
Ijara, Ijara wa Iqtina and Murabaha Mortgages
An Ijara mortgage is where a bank or other financial institution buys a property for its client. The client then leases the property from the bank, renting it at a premium to reflect the time value of the mortgage.
Closely related is Ijara wa Iqtina, in which the client is leasing the property from the bank with the option of gaining ownership at the end of the mortgage. This arrangement is comparable to a lease-to-own deal on real estate or an automobile.
Murabaha is where the bank purchases a property and resells it to the client at a premium. This is done in installments, and the higher price represents the time value of the bank's investment.
Finance
As with all forms of Islamic finance, these three kinds of Islamic mortgage are based on the concept of risk-sharing. The bank awaits a complete pay-off on the property, but cannot charge late penalties because there's no interest due. Conversely, the bank is the owner and is therefore able to foreclose on a delinquent client.
While other forms of Islamic finance exist, they involve profit-sharing and are more applicable to business ventures. Potentially, a mortgage on a business property could follow one of these schemes, but the complications may be prohibitive.
Just as mortgages can be carried out in accordance with Sharia law, so too can Muslims remortgage their homes. Islamic remortgages function in much the same way as secular remortgages.
A bank that offers Islamic remortgages - as many in Britain now do - would first appraise the property and calculate its worth. If the Islamic mortgage in effect at the time was not reflective of the property's current worth, the homeowner or lease holder could opt for a remortgage.
Islamic remortgages can offer the same benefits as a secular remortgage. By lowering the monthly payment-over-cost that is the feature of Islamic mortgages, Muslim consumers can save income.