Friday, April 06, 2007
Philippine Islamic Mortgages
It is against Islamic law to pay or receive interest, This creates a problem for our Muslim brothers when it comes to getting a loan or a mortgage. Fortunately however many banks and building societies are starting to recognize this as a problem and are offering an alternative. In the Philippines, the Al-Amanah Islamic Investment Bank of The Philippines, the first and only Islamic Bank operating in the country is offering such a service for our Muslim brothers.
There are two options available to you that correspond with Muslim law:
• The Murabaha (Deferred sale finance) Mortgage
• The Ijara (lease to own) Mortgage
The Murabaha Mortgage:
This is only really an option for individuals/families who have a fair amount of capital behind them, because it is a condition of this Mortgage package that you are expected to pay (circa.) 20% of your home’s value, on the day of purchase. However from that day the house will be registered as your own. You may pay off any debt that is outstanding on your home at any point. This package offers a fixed repayment period that is agreed between you and your lender, any a monthly repayment amount that is fixed for the term of your mortgage.
So how does the Murabaha Mortgage work?; When you find the house that you wish to buy, you arrange a sale price with the vendor as normal, however the bank pays the purchase price, then immediately sells the house to you at a higher price (the higher price is determined by the original price of the property, and the repayment period that you will have agreed with the lender), minus the percentage you pay as deposit.
The Ijara Mortgage:
This is a slightly more popular choice of mortgage, as you do not need a large amount of capital behind you to set up this mortgage, it is also slightly more flexible than its counterpart. An extra benefit to this type of mortgage is that it can even be taken out to replace an existing interest mortgage. The amount you pay each month is usually fixed yearly. The outstanding balance can be paid off at any time (usually) without incurring any penalties.
So how does the Ijara Mortgage work?; As with the Murabaha mortgage, you find a property that you wish to buy, and agree a purchase price with the vendor, the difference is that; your lender will then purchase, and gain ownership of the property. You will enter into a lease agreement with the lender. Each month you will be expected to pay rent to your lender and a contribution towards the purchase of your property.