Understanding how ijara mortgages work is important. The word itself means rent in Arabic. Although this type of mortgage is similar to a conventional rent-to-own style, there are sharia compliant differences.
You need to deal with Gharar and what that terms means. It means, risk or chance, hazard or uncertainty. Any kind of mortgage that has this and it is not sharia compliant.
Islamic Mortgages and Gharar
In Islam, people contribute money for commodities. They can also trade commodities for commodities, but not money for money. Doing that produces riba or interest. This is just a form of gharar to be avoided.
So it is a good idea to avoid interest and that means looking for a mortgage that Ijara. This is a term that refers to a home purchase plan that involves leasing.
Here’s some more of what you need to know about that.
- You’ll make monthly payments with one of these plans. The money that you pay is part capital, part rent and part charges.
- The part of the property that you own stays the same through the entire arrangement. At the end of the process, you are the sole owner of the property.
Here’s How Ijara Mortgages Work
These types of mortgages are popular. They are flexible. You don’t need a lot of money to set one up.And you can pay off the balance at any time.
There are other options to choose from. One of these is called Murabaha. Here, a lender purchases the property and sells it had a slightly inflated price. The market value of the house as well as the length of the mortgage dictate how much you pay.
Here’s a few final notes about ijara mortgages. Consider the following when you are working out how much you can afford. Put aside some money for legal fees. Two lawyers are needed. One will act for the person buying the property and the other for the lender.