Mortgage Finance is not House Loan

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The conceptof the home which in reality is a house and perceived as “a house is made of walls and beam, home is made of love and dreams”. House is a material thing and home is a spiritual feeling of ownership for the living need. Islamic economics has defined the concept of home and house. House is as commercial importance for using it as a basic need of a home. Some say stupid make the house and wise make it home. I add, “wise make houses to save for homes”. Not everyone has the ability, capabilities and capacity to afford the ownership of a house for home need. The home need, develop a home financing or house loan under a facility of bank mortgage on “interest”. The interest never allows the feeling to be a house owner and feel home of comfort.
What is “Interest”? Interest is a category of “Riba” which is, any earning, income, profit or benefits being earned, taken or received through the wrong means, bad intentions, shady practices or wicked participation are classified as Riba. Such earnings and benefits are not only treated as immoral, injustice and filthy but furthermore negative to the socio-economic life of the society, and leads to crimes of various nature, cruelty, exploitation and self-important. “Interest” could be defined as a premium amount which is fixed in percentage on the loan for a fixed period and guaranteed by the borrower to the lender at the spot, to be repaid in the future. The guarantee is the confirmation to the success of the transaction, prior to the start with the loan terms and condition in the exploitation to the need of the borrower by the lender and without realizing the consequences during the period of debt. Man is not empowered to guarantee the future. It is “Shirk”, the idolatry other than Allah and Almighty Allah declared war against those who give, take, write or witness interest.
Mortgage under the loan is the interest base system which increases or decreases according to the repayments and default in payments. Islamic finance differs to this system and introduces a magnificent system that works on the human affordability, developing the saving conduct, net worth and lead to the ownership of the house for home. It is a process that covers the risk of financier and facilitates the Sarif (User) in satisfying the need for shelter within its financial means. Islam permits the trade through exchange of money against the commodity in consideration of participation to benefit according to the ratio on income through finance and its utilization. Islamic Finance provide the facility to Sarif, benefiting the purchase of property for self, for trade or for commercial purpose using five Islamic financial products on participation.
The large housing market depends on Mortgage loans. These are being offered in a variety of forms. There are varying terms, or lengths of this loan. The first differentiator between different types of loans is the fixed-rate loans, the most popular type of mortgage, offer a fixed-rate for the life of the loan. A loan with a 5% rate will stay all the way through maturity. No matter what happens to the economy or other interest rates. The most significant advantage of this is predictability a homeowner knows exactly what their payment will be and can have confidence that it will never change. The other option is a loan on amortization in which the interest is calculated on the basis of a number of days and any delay and early payment are subject to the penalty and it increases the cost of the loan at the maturity which the loan buyer avoid. The second ways, a large part of house buyers avoid availing from conventional banking channel.
Difference between Loan and Finance: There are many people who think that home financing is better as compared to a mortgage loan. However, before one takes a decision, on any one of the two systems, the difference of “lending” which is a “liability” and the “financing” which is an “equity” of the transaction must be clearly understood. It is also to clearly explain how Islamic Finance differ from Conventional Loans. A small clarity is enough to understand that the finance work on socioeconomic and loan is allied to the economic system on the application of “Rate” on the loan amount, whereas financing is participation at the Ratio which is applied on Net Income on the use of financing.
How does it work?
A man opts to Home Finance to “Save” for his future in the next 10 years within his financial reach. His estimate 30% of his monthly income of 4,000, which allow him to pay 1,200 per month as payment to be the owner of a house, which is present he is paying as a monthly rental to his accommodation.He selects a house at a price 125,000, with charges and deposit 15% equity on Cost Price. His monthly repayment includes instalments for purchase and rental to live, structured within 30% affordability level. The instalment is the saving part 78.06% and rental is the expense of 21.94% in a ratio of 30% of GMI 4,000.
On the maturity of 10 years he found the value of his property increased at 25%. This gain is the premium that compensates the expenses he paid as rent.The financier has no share in the increase or decrease of the value of the assets.In the case, he decides to sell the present property and buy a bigger one, the sale price with any premium is not shared with the financier.In the case he defaults, the financer will liquidate the property and return him the principle payment, excluding rentals. Any increase in the value of the property is a profit of the financier.
Home loan on amortization is a straight Riba and Interest base system. This method is design on affordability process that do not have any fixed and guaranteed rate and have several options for buyer to make his tailor made facility instead of custom made. This is a real participation that eliminate interest and Riba
The State and Economic: The state cannot provide the home for every citizen. By giving special incentives and promoting saving schemes for generating resources through the participation which boost the industrial sector. Saving schemes funds for home finance shall ultimately use in the construction industry and material produced by almost 21 small and big industries, accommodate direct and indirect employments, that eliminate the street crimes, and terrorism that grew due to the unemployment in the society. The Islamic economic system specifies this illness of society and directs towards social growth rather be economic development. For social growth education, health, housing, food and clothing industry have to be gear-up. It is also a fact that Food, Textile and the construction industry could bring the 60% growth is the employment as the three-sector are interconnected with almost 42 essential products which are the basic need of a common man.
Riba free mortgage finance is not a liability, but a facility to facilitate under the participation form of agreement that ultimately makes a person, the owner of the asset without a change in the financial matters during the finance in the facility. Beside expenses in the process of homeownership, the facility could fetch a premium as he finishes his part of the payment. The facility offered to Sarif is not only buying and selling of a home but the verity of activities that give him the opportunity to be an investor too in the program.
The Muslims living in the non-Islamic societies are the real source to multi trillion turnovers in the next decade which end in 2031 and it is the new option to the gateway for the financial market to reach the treasury hidden in Islamic Mortgage Finance. (for question write at pride4pen@gmail.com)
This is the burning topic for the Muslim in the non-Muslim societies. A large number of mails came to me and I had replied their concern on home loan and finance. I gathered the replies and made this 1378 words with working on affordable method. I also develop a leasing and trade product on Islamic system and if you have time we can develop a real product to sell it in the financial market through any company like EY or IT Solution.

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