Fatwa: # 44513
Category: Business Matters
Country: African Country
Date: 14th March 2020

Title

Is it permissible to take out an interest only fixed rate mortgage?

Question

As-Salaam-Walaikum,

My situation is that i currently own my own property, on which i have a mortgage which i pay monthly. My property is the only one i have purchased to date and that is the only mortgage i have.

I have recently been thinking about purchasing a second property to develop and rent out for further income. My plan would be to use my savings that i have to place a deposit, and then take out an interest only fixed rate mortgage to make the monthly payments. These payment will be fixed and so the amount of money payable each month wont deviate, like a variable mortgage.

Also the mortgage would be interest only (so none of the capital would be reduced).

My question: Is it permissible for me to take out a second mortgage, whilst i am still paying for my first one.

As i have mentioned this second mortgage is for additional income and i do not plan to live there.

The monthly payments will be fixed, so the interest rate won't deviate.

P.s. - The advice i have previously recieved is that it is allowed for a person to have 1 mortgage out of neccesity which needs to be paid of as soon as possible. That is what i did for my first house, where i currently live.
 

Answer

In the Name of Allah, the Most Gracious, the Most Merciful. 

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh. 

 

What is a Mortgage?

A mortgage is a loan taken out to buy property or land. The loan is secured against the value of your home until it’s paid off. If one is unable to make the repayments the lender can repossess his home and sell it, to recover any financial loss.[i]

 

Shari’ ruling

Mortgages issued from a conventional bank are generally interest based and are therefore impermissible, be it an interest only fixed rate mortgage.

 

It is precisely this kind of transaction (mortgages etc.) which the Quran expressly prohibits.

 

يَا أَيُّهَا الَّذِينَ آمَنُواْ اتَّقُواْ اللّهَ وَذَرُواْ مَا بَقِيَ مِنَ الرِّبَا إِن كُنتُم مُّؤْمِنِينَ

فَإِن لَّمْ تَفْعَلُواْ فَأْذَنُواْ بِحَرْبٍ مِّنَ اللّهِ وَرَسُولِهِ وَإِن تُبْتُمْ فَلَكُمْ رُؤُوسُ أَمْوَالِكُمْ لاَ تَظْلِمُونَ وَلاَ تُظْلَمُونَ

Translation: O you who believe! Observe your duty to Allah and give up what remains (due to you) from usury, if you are true believers.

But if you do not, then beware of war from Allah and His Messenger; and if you repent, then you shall have your capital; neither shall you make (the debtor) suffer loss, nor shall you be made to suffer loss.

 

In essence, Interest is the cost of using somebody else’s money. Such additional costs are not recognised by Shariah as such costs are not in exchange for any assets (assets that hold value). Shariah only approves of a transaction wherein assets are on both sides of the transaction and one (asset) is transacted in exchange of the other. 

 

Harms of Interest

Should one enter into an interest-bearing transaction a surplus amount of cash is being injected within society which not only places the affluent in an unjustifiably advantaged vantage point but also has detrimental socio-economic impacts like inflation which further disadvantages one’s fellow impoverished members of society. 

 

In view of the above and the many more depravities it seeds within society, the Quran speaks severely against it. 

 

Reliance on Allah

Our joys and apparent economic prosperity are according to our limited knowledge. In opposition to the ultimate and most complete knowledge of Allah. His love for us is true and pure and only he knows what serves most beneficial for mankind.

...وَعَسَى أَن تَكْرَهُواْ شَيْئاً وَهُوَ خَيْرٌ لَّكُمْ وَعَسَى أَن تُحِبُّواْ شَيْئاً وَهُوَ شَرٌّ لَّكُمْ وَاللّهُ يَعْلَمُ وَأَنتُمْ لاَ تَعْلَمُونَ (البقرة، ٢١٦)

Translation: … and it may be that you dislike a thing while it is good for you, and it may be that you love a thing while it is evil for you, and Allah knows, while you do not know.

(Al-Baqarah, 216)

 

Place your trust in Allah and resist from such temptations. It is most certain that a moment of patience for the sake of Allah (only) shall unlock many more opportunities in the future.

 

And Allah Ta’āla Knows Best

Mohammed

Student Darul Iftaa 

UK

Checked and Approved by, 
Mufti Ebrahim Desai.

 


[i] https://www.moneyadviceservice.org.uk/en/articles/mortgages-a-beginners-guide

https://www.moneyadviceservice.org.uk/en/articles/mortgages-a-beginners-guide

https://www.ooba.co.za/resources/home-loan-interest-rates/

https://www.moneyadviceservice.org.uk/en/articles/buy-to-let-mortgages

https://www.policygenius.com/mortgages/how-does-mortgage-interest-work/

https://www.ooba.co.za/resources/home-loan-interest-rates/

https://www.thebalance.com/what-is-a-mortgage-interest-rate-4584864

https://www.bankrate.com/mortgages/current-interest-rates/

https://www.researchgate.net/publication/46545934

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