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Thursday, October 21, 2021

Are Mortgages Halal? – Things to Know About Mortgages

Here in the UK, getting a mortgage is certainly pretty tricky, especially if you’ve never gotten one before and don’t quite know what to expect. What’s more, when you consider some of the different deals and payment plans which are available, things become even more complicated than you could have ever imagined. In order to obtain a mortgage, you need to prove to the banks that you can be trusted with money, you need to ensure that you can comfortably afford to keep up with monthly mortgage repayments, and you need to prove your income, and show the banks that you are sensible with money. The banks, or other lenders, are lending you hundreds upon hundreds of pounds, so they need to know that they are going to be getting their money back, plus interest. In some religion’s eyes however, interest is sinful, which is why it’s important to know your other options. Here are a few things to know about mortgages. 

Are mortgages halal? – The UK is home to a fairly large percentage of practising Muslims, many of whom have raised issues and concerns regarding mortgages and often find themselves asking are mortgages halal? Well, as it turns out, there are Islamic mortgages available, which indeed do answer the question of are mortgages halal, by pointing out that, yes they are. When you replace a regular mortgage with a halal mortgage, the bank buys from you at the current market value, you agree to buy it back at the same price so that the bank then pays off the interest based mortgage, leaving you to repay the bank back in equal monthly payments. This is all down to the fact that paying and receiving interest is sinful, but by going with an Islamic mortgage, you receive no preferential treatment, but you avoid sinning in the eyes of Allah. 

Mortgage rates could change – Even if there is no shift in base rates in the bank of England, your mortgage rates could still potentially change. You see, if you are paying your lender’s SVR, or standard variable rate, you may wish to go with another mortgage. This is because the lender sets the rate, so the bank of England has no say in the matter. You see, even though base rates at the BOE, have remained at 0.50% for seven years, there have been many lenders who have increased their SVRs, this means that homeowners could potentially see their mortgage payments increase as a result, which is hardly fair. 

Fixed mortgages protect against rate increases – If you are worried about mortgage increases affecting you in the near future, it is advised that you potentially think about going with a fixed mortgage instead. Fixed mortgages are slightly higher than other mortgages, but they give you peace of mind, leaving you safe in the knowledge that your mortgage payments will not increase as a result. 

Consider how long you agree to lock in for – If you do decide that a fixed rate mortgage may be the better option for you, you will need to consider how long you want to lock in for. You see, for these deals, and for discounted rates or deals with low trackers, ERCs, or Early Redemption Charges will probably apply for the duration of the introductory period. So, in simple terms, if for whatever reason, you need to get out of your mortgage, you will have to pay a penalty payment, which will almost certainly be thousands of pounds. As none of us want to waste thousands of pounds of our hard earned cash, we will need to think very carefully about how long we agree to lock in for, and if there is a risk of you needing to get out of your mortgage, you may wish to go with an alternative deal.

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