A new type of mortgage is gaining popularity in the United Kingdom and the United States. It is a way to combine capitalism with the ethics of religion: Islamic mortgages.
According to Bloomberg news, the global Islamic finance industry is worth a staggering $1.3 trillion, and is continuing to grow, with annual growth rates of 15 percent. A part of that industry is based upon real estate and mortgages. Islamic mortgages have funded a wide variety of purchases, including residential mortgages as offered by the UK’s first lease-based mortgage provider: United National Bank of Pakistan. But these financing tools have also funded larger purchases, like the construction of the Shard of Glass in London.
Rules and Regulations
Islamic mortgages are fundamentally different than traditional mortgages due to religious restrictions of Islam. Under the principles of Shariah (Islamic Law), a payment or interest is prohibited. Conventional mortgages cannot be used by practicing Muslims, but many home prices are too high for a typical customer to buy outright. This is where Islamic home loans assist buyers. For these loans, the bank can purchase a property and sell it back to a mortgage owner in three different ways:
- A bank can sell the property at a higher price to the mortgagee in an installment plan, or rent it to the homeowners and have the mortgagee pay a contribution towards the equity of the home each month until it is paid off.
- Owners can choose a “lease to purchase” option because the homeowner rents the property while paying down principal and gaining equity on the property.
- Mortgagees can create a Limited Liability Company (LLC) where the finance company and the homeowner both own shares of the property.
Read on:
http://loans.org/mortgage/articles/islamic-funds-blend-faith-and-capitalism
No comments:
Post a Comment