Do you have a mortgage?

[dhugfe]

Rahima;983019 wrote:

Exactly, that is how it should be but as i asked above, do the "Islamic" banks work that way? I haven't seen any that do.

 

I think the Islamic mortgage financing process is fixed and there is no two way about it. That process gets murky, however, when those “Islamic banks” try to alter that process to their advantage. For example, the monthly payment towards the principle (equity) should only cover the principle, remain fixed over the life of the loan and should be known in advance. Instead those banks try to make it variable to reflect the “market rate” which is nothing but interest and it increases the bank’s equity, which should never happen in this system. The only thing that is allowed to be variable, to reflect the “market rate”, is the rent portion which shouldn’t be a surprise because rent varies over the years.

 

There is a bank called lariba here in the states, and at first glance it looks legit, but further research might be needed. There is always something in the fine prints.

[Khadafi]

dhugfe;983209 wrote:

I think the Islamic mortgage financing process is fixed and there is no two way about it. That process gets murky, however, when those “Islamic banks” try to alter that process to their advantage. For example, the monthly payment towards the principle (equity) should only cover the principle, remain fixed over the life of the loan and should be known in advance. Instead those banks try to make it variable to reflect the “market rate” which is nothing but interest and it increases the bank’s equity, which should never happen in this system. The only thing that is allowed to be variable, to reflect the “market rate”, is the rent portion which shouldn’t be a surprise because rent varies over the years.

 

There is a bank called

lariba

here in the states, and at first glance it looks legit, but further research might be needed. There is always something in the fine prints.

That's what I thought dhigfe!. Why would a bank lend you money and on top of that make no profit on it?. Let's say that they did lend you the money but you were not able to pay the loan, who is going to pay them (or insurance them) for eventual losses when the house is sold byforce?.

 

I am not so good on economics but thats my few coins on it.

[dhugfe]

Khadafi;983217 wrote:

That's what I thought dhigfe!. Why would a bank lend you money and on top of that make no profit on it?. Let's say that they did lend you the money but you were not able to pay the loan, who is going to pay them (or insurance them) for eventual losses when the house is sold byforce?.

 

I am not so good on economics but thats my few coins on it.

 

The bank co-owns the home. Think of it as if you and the bank went and bought the property, the bank puts most of the money and you put in some. The profit for the interest based bank is the interest, where for the Islamic bank is the rent. When the value of the home bought with an interest based mortgage falls, the bank wants 100% of its money in full with interest or it will foreclose on the house. The Islamic bank, however, shares the loss with you.

For example, suppose the value of the home was $250000 and the bank lent you 90% (225000) of it. If the value of the home falls to 200000 the next day, the Islamic bank still owns just 90% (180000) of the current value, that is a loss of (45000) for the bank and your loss is 10% (5000).

The interest-based bank would not have taken that lost, you would have still owned the bank the full (225000), and to make it worse, owe interest on that as well. Imaging owing 225000 on a home that is valued at 200000, you are underwater for 25000. This means that even if you sell the home for 200000, you’d still have to come up with extra 25000 plus interest for the bank or just pack and leave and let the bank have it.

[guleed_ali]

dhugfe;983209 wrote:

I think the Islamic mortgage financing process is fixed and there is no two way about it. That process gets murky, however, when those “Islamic banks” try to alter that process to their advantage. For example, the monthly payment towards the principle (equity) should only cover the principle, remain fixed over the life of the loan and should be known in advance. Instead those banks try to make it variable to reflect the “market rate”

which is nothing but interest

and it increases the bank’s equity, which should never happen in this system. The only thing that is allowed to be variable, to reflect the “market rate”, is the rent portion which shouldn’t be a surprise because rent varies over the years.

 

There is a bank called

lariba

here in the states, and at first glance it looks legit, but further research might be needed. There is always something in the fine prints.

 

By that same logic when you rent an apartment your rent should never go up for the life of your tenancy. And please never use the word "loan" to describe and a sharia compliant partnership agreement. The only loan you can make in Islam is a Qard Hassan (قرض حسن) a loan that reaps no benefit. Because any loan that reaps a benefit is Riba (كل قرض جر نفعا فهو ربا)

 

The best way I can explain these partnership agreements is in this way:

 

I partner up with a bank and purchase a four bedroom home for $400 000. The partnership is a 75%/25% split ( The bank and you put up 300k and 100k respectively). Ya'll decide to rent the house out for $1600 a month the going rate for such a home. But rather than rent it out to someone you decide that you need to live somewhere yourself so you tell the bank that you'll rent the 75% that you don't own. So you'll pay the bank $1200 a month (75% of $1600) and on top of the $1200 a month you'll pay the bank $800 a month to buy more ownership of the home (Principal if you will). You agree to this for say 5 years. In 5 years you've contributed $48 000 towards principal. Now your share of the home is $148 000 and the bank's is $252 000. It's time to renew the agreement, but now a similar home rents out for $2000. You now own 37.5 of the home to the bank's 62.5%. You rent will now be $1250 (62.5% of the new rent $2000). This is what bothesr dhugfe is that the rent amount changes. However for a true partnership you have to give your partner what the market rate is for the rent. So if the market rate falls (which hardly happens in this day in age) then your rent payment falls. I hope this explains it in a better way.

 

 

Wasalamu Alikum

[guleed_ali]

dhugfe I believe I understand your concern, in that you can't have a rental contract at the same time as an sale contract. The correct way is to have a rental contract with the promise to end in ownership. The contract can't be made up of a sale and rental contract at the same time. Another major condition is that there can't be any underlying caveats that the shariah objects. I.e you can't include interest based penalties for missed payments etc. There are organizations that adhere to these rules but one must make their research and consult with people who are familiar with it. Like everything in life it is a struggle but it is worth it at the end of the day!

[dhugfe]

guleed_ali;983224 wrote:

By that same logic when you rent an apartment your rent should never go up for the life of your tenancy. And please never use the word "loan" to describe and a sharia compliant partnership agreement. The only loan you can make in Islam is a Qard Hassan (قرض حسن) a loan that reaps no benefit. Because any loan that reaps a benefit is Riba (كل قرض جر نفعا فهو ربا)

Thanks for the advice, I was just using that term for simplicity and relevancy to what khadafi mentioned only.

 

guleed_ali;983224 wrote:

This is what bothesr dhugfe is that

the rent amount changes

. However for a true partnership you have to give your partner what the market rate is for the rent. So if the market rate falls (which hardly happens in this day in age) then your rent payment falls. I hope this explains it in a better way.

I am not bothered by the fact that rent varies or changes, in fact, in my post, I specifically said it wasn’t a surprise that it does. Granted I did not show the calculus on how or why it increases like you did but only that it does and it isn’t a surprise.

We were just discussing a snapshot of the process and I was more or less concerned with the fact that anything that increases the bank’s equity in the home [62.5% in your example] is safe to say is Riba. Be it a fee or the likes, and trust me banks can get very creative when it comes to squeezing few more bucks out of you

[dhugfe]

guleed_ali;983224 wrote:

By that same logic when you rent an apartment your rent should never go up for the life of your tenancy. And please never use the word "loan" to describe and a sharia compliant partnership agreement. The only loan you can make in Islam is a Qard Hassan (قرض حسن) a loan that reaps no benefit. Because any loan that reaps a benefit is Riba (كل قرض جر نفعا فهو ربا)

Thanks for the advice, I was just using that term for simplicity and relevancy to what khadafi mentioned only.

 

guleed_ali;983224 wrote:

This is what bothesr dhugfe is that

the rent amount changes

. However for a true partnership you have to give your partner what the market rate is for the rent. So if the market rate falls (which hardly happens in this day in age) then your rent payment falls. I hope this explains it in a better way.

I am not bothered by the fact that rent varies or changes, in fact, in my post, I specifically said it wasn’t a surprise that it does. Granted I did not show the calculus on how or why it increases like you did but only that it does and it isn’t a surprise.

We were just discussing a snapshot of the process and I was more or less concerned with the fact that anything that increases the bank’s equity in the home [62.5% in your example] is safe to say is Riba. Be it a fee or the likes, and trust me banks can get very creative when it comes to squeezing few more bucks out of you

[dhugfe]

Don't know what happened there with the two posting. :confused:

I wish SOL had a post delete option lol

[guleed_ali]

dhugfe;983233 wrote:

Thanks for the advice, I was just using that term for simplicity and relevancy to what khadafi mentioned only.

 

 

 

I am not bothered by the fact that rent varies or changes, in fact, in my post, I specifically said it wasn’t a surprise that it does. Granted I did not show the calculus on how or why it increases like you did but only that it does and it isn’t a surprise.

We were just discussing a snapshot of the process and I was more or less concerned with the fact that anything that increases the bank’s equity in the home [62.5% in your example] is safe to say is Riba. Be it a fee or the likes, and

trust me banks can get very creative

when it comes to squeezing few more bucks out of you

The only thing they can't do is purchase the home and resell it to you. If I'm not mistaken banks cannot legally participate in the purchasing and selling of real estate. There in lies the problem! They can get as creative as they want but they still won't be able to satisfy the backbone of the agreement which is ownership and in turn shared risk.

 

I'm not sure how the bank's equity increases in my example it went down from 75% to 62.5%. Compare that to a conventional mortgage and you'll see a huge difference in principal between year 1 and year 5. Again I must remind everyone of the quranic verse:

 

"That is because they say: Trade is just like usury; whereas Allah permitteth trading and forbiddeth usury" 2:275

[dhugfe]

guleed_ali;983237 wrote:

The only thing they can't do is purchase the home and resell it to you. If I'm not mistaken banks cannot legally participate in the purchasing and selling of real estate. There in lies the problem! They can get as creative as they want but they still won't be able to satisfy the backbone of the agreement which is ownership and in turn shared risk.

good point but I think they can if the home is foreclosed except they rather get rid of it fast than keeping it. why? I am not sure. Maybe there is a federal penalty if they keep the home for too long, that's why foreclosed homes are very cheap, the bank sells it on the cheap just to liquidate it, there are even reports that foreclosed homes can go for as low as $1000 in some locations :confused:

 

but you are right, that ownership of the home is one of the biggest obstacles faced by Islamic mortgage financing at least here in the states where banks cant really trade on property and if the bank cant co-own a property, there isn't much of a shared risk I guess.

 

guleed_ali;983237 wrote:

I'm not sure how the bank's equity increases in my example it went down from 75% to 62.5%. Compare that to a conventional mortgage and you'll see a huge difference in principal between year 1 and year 5. Again I must remind everyone of the quranic verse:

 

"That is because they say: Trade is just like usury; whereas Allah permitteth trading and forbiddeth usury" 2:275

I didn't say it increased, I just took it as an example.

[Rahima]

Here in Australia, the Somalis are buying homes with cash. Half a million dollar homes, how? Trying to figure it out.

[Khayr]

^ Rahima, tell me their names and addresses of those people that

have 500,000 dollars in cash. I might be related to them and if not by blood, then I will accept money relatives...lol

[Khayr]

On another note, banks laugh at the gullibility of muslims.

So more and more banks are joining in on the parade and telling their contract lawyers

to erase the word interest and replace it with some arabic terms so that they can gain more muslim clients for their residential mortgages

...i mean Halal Mortgages .

 

This is a good topic to discuss and it shows the dilemmas of migrating to non-muslims lands.

[Blessed]

Rahima;983245 wrote:

Here in Australia, the Somalis are buying homes with cash. Half a million dollar homes, how? Trying to figure it out.

I'd like to be in on their secret...?

[Juxa]

The only home I could buy most likely will be massive mudul in my tuulo.