The mortgage has become a popular way to finance a home or store purchase. It involves borrowing money from a lender and paying it back over time with interest.
People think it is a good option because it allows them to buy something that is otherwise out of their budget.
But when there is involvement of interest (riba) in a transaction, every Muslim worry because Islam prohibits any transaction involving interest.
In this article, we’ll clearly answer is mortgage haram or halal in Islam with the light of the Quran and Hadith. Will also provide some guidelines for owning a home in an Islamic way.
Is Mortgage Haram In Islam?
Yes, the mortgage is considered haram according to Islamic law. This prohibition is because a mortgage involves the payment of riba (interest).
The Quran is quite clear on the prohibition of interest, stating that:
“O you who have believed, do not consume usury, doubled and multiplied, but fear Allāh that you may be successful.” (Al-Imran 3:130)
This verse of the Quran makes it very clear that any transaction involving interest is not allowed in Islam.
According to Islamic scholars, a mortgage is haram because it involves the payment of interest on a loan. Interest payments are seen as riba, or usury, and are not allowed in Islam.
In contrast to traditional mortgages, some Islamic home financing options follow principles based on Islamic law. These include Murabaha, Musharaka, and Ijara contracts.
Well, such options are not available in all countries and are usually offered by Islamic banks. Also, due to less competition and higher risk, the cost of such contracts may be higher than conventional mortgages.
Hence, most scholars believe it is better to avoid such financing options and find other ways to finance a house purchase. Otherwise, stay away from buying a house if you can’t afford it and pay rent instead.
InshAllah, you will find a way to own your house without involving interest soon.
Why Is Mortgage Haram In Islam?
A mortgage is haram in Islam because it involves the payment of riba (interest) on a loan. Interest payments are seen as usury and are not allowed in Islam.
In a traditional mortgage, the borrower pays back the loan with interest over a fixed period. This is considered haram in Islam because interest payment is not allowed.
For example, if you borrow $100,000 from a lender and pay back a total of $150,000 at the end of the loan period, this is considered usury because you are paying back more than what you borrowed as interest.
If you look at this in financial terms, you are basically “renting” the money from the lender for a period of time and paying back more than what you borrowed. According to Islamic finance, this is a clear loss from the lender’s side and haram.
Islam always promotes equitable transactions where both parties come out in a similar way or benefit.
Guidelines To Own A Home In An Islamic Way
If you want to own a home in an Islamic way, here are some options that you can consider:
Save Up and Pay in Cash: This is the simplest way to purchase a home without involving any kind of interest or riba. If you can save enough money over time, then you can use that savings to purchase the home at once.
Look For Islamic Mortgage Options: Some Islamic banks and lenders provide mortgage options that follow principles based on Islamic law. These include Murabaha, Musharaka, and Ijara contracts.
1. Murabaha: In this type of contract, the lender buys the property on the borrower’s behalf and sells it to him at a profit. In this process, the lender gets a profit, and the borrower pays a fixed amount as an installment each month or year, which doesn’t involve interest.
2. Musharaka: This is a partnership agreement between the lender and the borrower. Property ownership is shared between them, and profits are divided based on the agreement.
3. Ijara: It is a leasing arrangement in which the lender buys the property and leases it to the borrower for an agreed period. The rent paid is used to pay off the installments for the purchase price.
This way, you can’t break the Islamic laws and still own your house. However, if you’re smart, we recommend avoiding such financing options as they may be expensive due to less competition in this market and higher risk.
You might know life insurance is haram, but don’t know why is life insurance haram. You can read our guide on this.
Q. Is paying a mortgage haram?
A. Yes, paying a traditional mortgage is haram in Islam as it involves the payment of riba (interest).
Q. Is mortgage haram in Canada?
A. Yes, a traditional mortgage is haram in Canada as it involves the payment of riba (interest). However, if an Islamic financing option is available, it is permissible in Islam.
Q. Is mortgage haram in the UK?
A. Yes, a traditional mortgage is haram in the UK as it involves the payment of riba (interest). However, 4 to 5 Islamic banks in the UK offer Shariah-compliant mortgages. If you choose such an option, then it is permissible in Islam.
Q. Is mortgage halal in the USA?
A. It depends on what type of mortgage you are taking. A traditional mortgage is a haram in the USA as it involves the payment of riba (interest). However, if you choose an Islamic banking option, then it is permissible in Islam.
Q. Is it haram to buy a house on a mortgage?
A. If you take a traditional mortgage, it is haram in Islam to buy a house, as it involves the payment of riba (interest). However, if you choose an Islamic banking option, then it is permissible in Islam.
Q. Can Muslims have a mortgage?
A. No, a traditional mortgage is haram in Islam, as it involves the payment of riba (interest). However, if you can afford Islamic Mortgage options, then it is permissible in Islam.
Q. What does the Quran say about mortgages?
A. The Quran strictly prohibits riba (interest) and usury, which are associated with a traditional mortgage, so it is haram.
Q. Is being a mortgage broker haram?
A. Yes, being a mortgage broker for a traditional mortgage is haram in Islam, as it involves the payment of riba (interest). You can always look for Islamic banking options to provide a mortgage service.
Traditional mortgages involve the payment of riba (interest), which is strictly prohibited in Islam. Therefore, Muslims should look for alternative Islamic options to avoid any kind of interest or riba.
In this case, Islamic mortgage options such as Murabaha, Musharaka, and Ijara contracts are permissible in Islam as they don’t involve the payment of interest. Muslims can look for these options to buy a house without breaking Islamic principles.
If you ask our opinion on this, we will strongly recommend avoiding any kind of traditional or Islamic mortgage. This is because traditional mortgages is haram, while Islamic mortgages are often expensive due to less competition in the market and higher risk.
I hope your query on is mortgage haram is resolved now. If you have any other query related to halal or haram in Islam, then do let us know in a comment or search for it on our website.
We wish you all the best, and may Allah bless us all with guidance and success. Ameen.