If you are looking for a halal mortgage to buy your first or second home or commercial property, you are in good company. Research indicates that the Islamic finance sector is growing between 15 and 25% every year.
Those numbers include sharia compliant mortgage products. If you are undecided, here are a few advantages that can help you to make up your mind.
- There’s no compounded interest with any of these products. In fact all Islamic financing restricts paying or receiving interest which is called riba. One of these mortgages also makes it necessary to balance spiritual obligations and your material needs. The longest term available is 25 years. Clients can repay the money in full at any time during that period without a penalty.
- A halal mortgage is easy to understand. A trust gets created that is a legal entity. These are familiar as a vehicle used to handle an estate. However, they can also be used to hold real estate on someone else’s behalf.
- A big advantage to a trust is privacy. Traditional real estate records are public and anyone can see who owns a property. These sharia compliant mortgage products are private and this can be helpful if you are acting as a landlord.
- Another bonus to a trust is simplicity. These make it easier to administrate to a piece of real estate that has several different owners.
These types of mortgages also have a lower overall cost. Contrary to popular opinion, Islamic financing is not more costly than a traditional home loan. Recent research points to the fact these types of mortgages have evolved to be cost-effective and efficient. In fact, they save clients a large amount of capital over the long run.
Advantages of a Halal Mortgage
There are some other advantages to using a trust over a conventional mortgage. You can transfer the ownership of the real estate to anyone you choose quickly and easily. Traditional contracts aren’t necessary and neither are public records or notaries. This system allows people to avoid sales and transfer taxes.
There are some other requirements that people should be aware of. The Islamic financing bank you finally choose is the legal owner of the real estate. However, clients will need to cover the cost of articles like general maintenance, conveyancing and insurance.
There are a few other costs you will need to consider including a budget for lawyers’ fees, insurance, utilities and property tax. A halal mortgage also requires a down payment on the property. Typically, this can be as much is 20% of the purchase price.
Finally, on your Sharia compliant mortgage closing day, you’ll need to bring a cashier’s check. Personal checks are not usually accepted and they could actually delay the process.
Is also important to review the documents before you sign. It’s critical to make sure that you agree with all the terms like the profit rate. Make sure to verify even a simple information like the names and addresses on the documents.