{"id":1095,"date":"2020-07-21T21:27:57","date_gmt":"2020-07-21T17:27:57","guid":{"rendered":"https:\/\/moneymall.ae\/credit-blog\/?p=1095"},"modified":"2020-07-21T21:28:38","modified_gmt":"2020-07-21T17:28:38","slug":"islamic-home-finance-vs-conventional-mortgage-loans","status":"publish","type":"post","link":"https:\/\/moneymall.ae\/credit-blog\/islamic-home-finance-vs-conventional-mortgage-loans\/","title":{"rendered":"Know the Difference : Islamic Home Finance V\/S Conventional Mortgage Loans"},"content":{"rendered":"<p>A conventional mortgage loan is where your loan repayments will include paying a rate of interest to the bank, this is their profit for lending you the funds. An Islamic Home Finance differs from a conventional mortgage loan because under Shariah Law it is forbidden to charge interest on a loan, so in this case, banks will buy the property on your behalf and rent or lease it back to you for a profit. You can read more about the difference between conventional and Islamic Home Finance in this article below\u2026<\/p>\n<figure id=\"attachment_1105\" aria-describedby=\"caption-attachment-1105\" style=\"width: 1489px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/moneymall.ae\/credit-blog\/islamic-home-finance-vs-conventional-mortgage-loans\/islamic-home-finance-vs-mortgage-loans\/\" rel=\"attachment wp-att-1105\"><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-1105\" src=\"https:\/\/moneymall.ae\/credit-blog\/wp-content\/uploads\/2020\/07\/Islamic-Home-Finance-Vs-Mortgage-Loans.jpg\" alt=\"Islamic Home Finance Vs Mortgage Loans\" width=\"1489\" height=\"838\" \/><\/a><figcaption id=\"caption-attachment-1105\" class=\"wp-caption-text\">Islamic Home Finance Vs Mortgage Loans<\/figcaption><\/figure>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_79 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a23420204475\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a23420204475\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/moneymall.ae\/credit-blog\/islamic-home-finance-vs-conventional-mortgage-loans\/#What_is_a_Conventional_mortgage_loan\" >What is a Conventional mortgage loan?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/moneymall.ae\/credit-blog\/islamic-home-finance-vs-conventional-mortgage-loans\/#What_is_Islamic_Home_Finance\" >What is Islamic Home Finance?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/moneymall.ae\/credit-blog\/islamic-home-finance-vs-conventional-mortgage-loans\/#What_is_Murabaha_financing\" >What is Murabaha financing?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/moneymall.ae\/credit-blog\/islamic-home-finance-vs-conventional-mortgage-loans\/#What_is_Ijarah_financing\" >What is Ijarah financing?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/moneymall.ae\/credit-blog\/islamic-home-finance-vs-conventional-mortgage-loans\/#What_are_the_differences_between_Islamic_Home_Finance_and_Conventional_mortgage_loan\" >What are the differences between Islamic Home Finance \u00a0and Conventional mortgage loan?<\/a><\/li><\/ul><\/nav><\/div>\n\n<h2><span class=\"ez-toc-section\" id=\"What_is_a_Conventional_mortgage_loan\"><\/span><strong>What is a Conventional mortgage loan?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><strong>With a conventional mortgage loan, a financial institution such as a bank will lend you money to purchase a new home and they will charge interest on this loan. <\/strong>A conventional mortgage loan is made up of the principal amount (i.e. the amount borrowed) and also the interest charged on the loan. With most mortgages, the principal and interest are paid off monthly over 25 years, which is why they are also known as repayment mortgages. In the early years, most of a borrower\u2019s payments are set against paying off the interest with a smaller part reducing the principal. As the end of the term nears, this method switches and more is paid off from the original loan each month.<\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_is_Islamic_Home_Finance\"><\/span><strong>What is Islamic Home Finance?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><strong>Islamic Home Finance works differently because Islamic financial institutions are forbidden from charging interest. <\/strong>There are several Islamic financing models, but Murabaha and Ijarah are the two key models used for home loans.<\/p>\n<p>&nbsp;<\/p>\n<p>According to Islamic legal jurisprudence, lending money to profit from any commercial or investment activity including the financing of real estate is not an acceptable method of commerce. The home financing program that Guidance Residential created is based on an Islamic financial concept known as \u201cMusharakah Mutanaqisa\u201d or \u201cDiminishing Partnership.\u201d In this method, the relationship between Guidance Residential and the homeowner is that of a partnership rather than a borrower-lender.\u00a0 Conventional home loan providers do not share the risk of natural disasters, eminent domain or foreclosure. Through this type of financing, the home buyer bears the brunt in case any of these misfortunes occur.<\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_is_Murabaha_financing\"><\/span><strong>What is Murabaha financing?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>With Murabaha financing, the bank purchases a property on behalf of the customer and \u2018re-sells\u2019 it to them at a profit. The buyer then pays the bank back through monthly instalments.<\/p>\n<p>&nbsp;<\/p>\n<p>Islamic banks need collateral to protect against the buyer not making their repayments, so the property is registered to the bank until all mortgage payments are complete, although there are some banks that will include the tenant\u2019s name on the title deed. An advantage of a Shariah-compliant home loan is that there are no additional interest payments for late payments (though the bank may charge a fixed fee).<\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_is_Ijarah_financing\"><\/span><strong>What is Ijarah financing?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Another Islamic financing model applied is Ijarah, which a buy and lease-back arrangement. This model is useful if you are buying a property off-plan as no payments are made until the property is completed.<\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_are_the_differences_between_Islamic_Home_Finance_and_Conventional_mortgage_loan\"><\/span><strong>What are the differences between Islamic Home Finance \u00a0and Conventional mortgage loan?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The main differences between the conventional financial system and the Islamic financial system are highlighted below:<\/p>\n<ul>\n<li>Firstly, under the conventional financial system, interest is charged which is determined on the basis of demand and supply of the capital while under Islamic financial system rent of the property is charged, determined through demand and supply of a real asset<\/li>\n<li>Secondly, as conventional banks do not own the underlying asset, hence sharing of risk and reward of property is not required while Islamic banks are co-owners of the property and share risk and rewards attached with ownership<\/li>\n<li>Thirdly, return for conventional banks starts from the date of the loan extension facility which is not the case in Islamic Home Finance. Under Diminishing Musharakah model return is due when the property is ready for use either through acquisition or through construction<\/li>\n<li>Fourthly, conventional banks will continuously receive the installments\u00a0 (containing interest and principal) even if the property is not usable and needs some repair. However, for Islamic Home Finance s, you do not need to pay the rent during the repair period<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>While conventional banks view money as simply a commodity, Islamic banks serve for public interest and their main objective is making \u2018halal\u2019 economic growth. They seek only to do with Sharia-compliant industries. Over the years, Islamic financing has evolved to become an option that is competitively compared to conventional home financing. The good news is that it\u2019s an affordable option for those who wish to achieve home ownership without compromising their beliefs. Thus, if you are looking for a home loan, you have both options available at your disposal. Make sure that you evaluate them one by one and then choose the most suitable one for yourself, according to your beliefs as well as requirements.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A conventional mortgage loan is where your loan repayments will include paying a rate of interest to the bank, this 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