Is mortgage haram? (A guide)

In this brief guide, we are going to answer the question: is mortgage haram? This is an important question if you are concerned based on your religion.

Is mortgage haram?

A mortgage is haram but there are specialist mortgages for those who practise Islam and these mortgages are halal.

There are however those who claim that mortgage is not haram and here is why:

Most Islamic religious teachers argue that using a standard mortgage to purchase a property is Halal, hence acceptable. This is because the interest being paid to the mortgage lender is strictly against the teaching of Islam and is Riba.

Whilst taking out a loan is not considered halal, any amount charged over the loaned amount is seen as Riba and this is strictly forbidden in Islam.

How consumable goods make the difference

However, the above teaching only applies to consumable goods hence things which cease to exist after they have been consumer e.g money, food etc.

When an item is not consumable the extra amount charged on top pf the loaned amount is not seen as Riba but simply the rental fee paid on the item.

Because a house is not identified as being a consumable good many people believe that getting a standard mortgage on a property is Halal and not Haram.

They argue that a standard mortgage does not serve as Riba as the interest being charged on the mortgage is being utilised on a non-consumable good. They argue that the interest which is paid to the bank or mortgage lender is simply for the use of the home and hence does not constitute RIba. They go on to highlight that the interest paid is for the use of the property which is a non-consumable good and not for the use of the money which is a consumable good. 

When there is Riba it is assumed that the good being loaned on os consumed and does not serve as collateral. In the case of a mortgage on a property the home is the collateral and is not consumed at the end of the mortgage. If you were to default on the mortgage then the property will be repossessed.

Is mortgage not Haram?

This argument for a mortgage not being haram serves to act in much favour for a sharia-compliant mortgage where the interest is essentially replaced with a rent as you own scheme where your rent payments buy you equity in the property over a fixed term.

A well-elaborated answer we found online stated “Riba is Haram in Islam because the person who has consumed the money, now has to pay rent (interest) for the money that no longer exists. There’re two hardships faced. First is to pay the interest on a regular basis (time value of money), the second is to actually come up with the principal amount. Whereas, in the case of rent of non-consumable items, if the renter cannot pay the rent, the owner of the item can take the item back. There’s only one hardship of payment of the rent…. not reproducing the principal item.

Therefore, the case of the mortgages of properties is exactly the same as the case of renting of non-consumable items.”

The conclusion by some is that the sharia-compliant mortgage and the standard mortgage are essentially the same things as their structures are the same but the interpretation of them is what makes most people view them differently.

In a partnership mortgage (Misharkakah) you will simply pay rent on a property as a means to buy equity in the property over a given time.  As you pay more rent you essentially buy more equity in the property. This makes diminishing of shares partnership (Musharakah mutanaqisah). Where the rent being paid counts towards the interest and the capital borrowed but is referred to as Ijarah.

Mortgage out of necessity: is it haram?

There are people who take standard mortgages rather than sharia-compliant mortgages out of necessity and claim that this makes these mortgages Haram as they are taken out of necessity. The fatawa of a number of Islamic scholars have indicated this but it is widely refuted by many too.  Mortgage is haram as it charges interest, although as you have sene above the way it is perceived can influence peoples views on if it is Haram or Halal.

Paying interest is viewed as a sin in Islam and Allah says: “Those who devour interest will not stand except as stands one whom Satan has driven mad by his touch.” [Sûrah al-Baqarah: 275]

It is seen as a sin to pay interest or to receive interest in Islam and hence mortgage is viewed by many as Harama regardless of if it is taking out of necessity or not.

Paying interest is sinful, just like receiving interest is sinful. “Allah curses the one who consumes interest, the one who pays it, the one who draws up the contract, and the witnesses to the contract, then he said they are same (in sinfulness) ” [Sahîh Muslim]

Although it is widely rebuked it is also allowed that out of necessity an interest loan can be taken for a single dwelling but many people use this exception to buy houses on mortgages which are beyond a single dwelling or beyond what they need.

When referring to necessity it is very delicate as what you may view as necessary may be viewed by others as not so necessary. You should seek advice from your elders before taking out a mortgage out of necessity as this may be haram.

Your local Islamic scholar will look at the matter on a case by case basis and let you know if they feel you need to get a mortgage or interest repayment loan for a house.

FAQs:

In this brief guide we answered the question: is mortgage haram? If you have any questions or comments please leave them below.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.