What Is an Islamic Mortgage?

An Islamic mortgage is a type of loan that is utilized by individuals that practice the Islam faith. If you practice the Islam faith, you have to handle your financial transactions differently than those outside of the religion. Because of this, you cannot take on large amounts of debt. This belief is what the principles of an Islamic mortgage are based on.

Islamic Mortgage

Because of this belief system, Muslims are not allowed to take on large amounts of debt. However, in order to purchase a house, most people are going to need more money than they have in their savings. Because of this large financial purchase, the Islamic banking industry came up with an Islamic mortgage to take care of the problem.

With this type of transaction, a potential home buyer is going to select a home that they would like to buy. They will then work with an Islamic bank in order to purchase the house. The bank is actually going to be the one purchasing the house initially. The individual is then going to make rent payments to the bank. Part of the payment will go towards purchasing the house. At the end of the loan term, the property is going to change hands again and will be the property of the individual.

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