Are Mortgages Halaal?


Assalaamu alaikum. Can you please clarify this matter as to whether mortgages are halaal or not? I saw one answer in your old site and a different answer in this new site. I’ll copy and paste below:

OLD SITE: page 12. Mortgages.

Q. What is the fatwa with regards to mortgages?

A. Mortgages are securities that are placed against something which is borrowed or given as a loan and are permissible in Islam.

And Allah knows best.
Mufti Waseem Khan

Taking a mortgage to purchase a home
Monday, 06 June 2011 23:06

Q. Is it permissible to purchase a home by taking a mortgage from the bank with the intention of not missing or making any late payments (to avoid interest penalties) for a fixed period with a fixed pay back amount?

Answer: With respect to your question it is the normal procedure of banks (with respect to home financing and other similar transactions) that they provide a loan by putting the home under mortgage, and on this loan they charge interest at fixed rates. If this is the case, then it will not be permissible for you to purchase a home by taking out a mortgage from the banks, even if you have the intention of not missing payments. (This is a case where you will be required to pay interest, and it will not be permissible).

And Allah knows best.
Mufti Waseem Khan

Wa Alaikum As Salaam

In the first answer (on mortgages/ old site), the question was asked about mortgages. Literally a mortgage which is referred to as ‘Rahu’ in Arabic, is a security given against a thing which has been borrowed or taken as a loan. This is given as a form of assurance to the lender, that in case the borrower cannot pay , then the lender can sell the ‘Mortgage’ and recover the money which he has given. If there is any excess, then he will give it back to the owner of the mortgage.

This is the Islamic concept of a mortgage and it is allowed in Islam since it is free from interest and speculation.

In the second answer (on new site), the question was asked regarding a ‘home mortgage from a bank’. The answer was given based on the common practice of conventional banks today, where this transaction is connected directly to interest. In this case when a person takes out a mortgage on a house, he actually borrows money from the bank in order to purchase the property. The banks lends him the money and takes the house as a security. However, while fixing a total sum for the borrower to pay, the bank calculates the capital amount as well as the interest which increases with the number of years the borrower takes to pay out the loan. While paying the mortgage the interest is paid first along with small part of the capital.

From this, it is clear that purchasing a home by taking a mortgage is not permissible on account of interest which must be paid. As for the first answer, it simply tells us that the concept of a ‘mortgage’ is acceptable in Islam because it is free from interest. However, in the common practice of conventional banks, it is different, hence, the allowance will not be extended to the modern concept of mortgages instituted by non-Islamic banks. With respect to Islamic banks, mortgages will be allowed since they are free from interest.

And Allah Knows best
Mufti Waseem Khan