When Conversion Works and Refinancing is Best

As a Muslim homeowner, securing a halal mortgage gives you more peace and confidence in your home. While you may have purchased your current property through conventional mortgages, you can turn your home riba-free and align with your beliefs through conversion and refinancing.  

This article will discuss the difference between conversion and refinancing.  

Conversion Explained 

A conversion refers to changing the nature of an interest-bearing mortgage into a sharia compliant one. Traditional mortgages are rent on money transactions, or also known as riba, which is something forbidden in Islam. Rent on money, in layman’s terms, is basically when you are paying someone for utilizing their money. But by changing its nature of the contract to a rent-on-property or “ijara” transaction, it becomes a riba-free and halal mortgage.  

What’s more, anyone can apply for a conversion at any point in the mortgage’s life. Whether you’re scheduling your first payment or halfway through the mortgage, we can accommodate the conversion application provided all the documents are available.  

Keep in mind that the economics do not change with the conversion process just the structuring. The terms, amount, and other factors of your mortgage will be the same, only that it’s now riba-free. 

Refinancing Defined 

But what if you want to take advantage of lower rates or change your terms AND turn your home into a Sharia-compliant one, then refinancing is the program for you. Available upon reaching six months on your current mortgage, we can negotiate for the best prices via our investors and apply our Sharia-compliant structuring to make it riba-free. 

ijaraCDC’s investor-led refinancing programs come in both cash-out and no cash-out options, providing you with the flexibility to go with a program that fits your needs. 

One thing to remember though is that this will reset your mortgage once approved. This means that if you’re at the end of the mortgage by the time you apply for refinancing, it will go back to day one.  

Should I Pursue Conversion or Refinancing? 

Now here’s the million-dollar question: “Should I go with a conversion or refinance my home?” 

The answer lies in what you plan to achieve, as well as how long your current mortgage is. If your mortgage is relatively new (we’re talking about less than six months), a conversion is a better path to go with. It lets you keep your current mortgage setup, only with an ijara structure that compliments your beliefs.  

On the other hand, refinancing is ideal for those who are further along with their mortgage and would like to get the terms changed. It lets you start a new mortgage at a better rate or different terms, plus it’s 100% riba-free.  

Got more questions about conversion or refinancing? Let the experts at ijaraCDC take care of your concerns and start you through the process.