Profit and interest : determining profit payments through interest rates

Fatawa Question

Dear Dr. Monzer, Assalamu Alaykum Wa Rahmatullahi Wa Barakatuh, Salamualiakum, I live in US. I bought a house year and half ago. I did my home financing through a conventional mortgage which is an interest based financing. Now I am planning to refinance my house through Sharia financing. There is one sharia complaint company with reputed Sharia Supervisory Board. They have a program called declining balance co-ownership program. In this program, the customer buying a house and the finance company become co-owners of the property. The agreement spells out each party ? s rights and responsibilities. As part of the contract, the customer agrees to purchase his / her co-owner ? s share in the property through affordable monthly payments over a period of 15, 20 or 30 years. Now the monthly payment consists of two elements. The first portion is the ""Profit Payment"". The remaining portion of the monthly payment allows the customer to acquire an increasing share of ownership in the home ? This is called the ""Acquisition Payment"". Together, these two amounts make up a predictable monthly amount that is competitive with the monthly payments offered in a conventional mortgage. Now the company determines the ""Profit Payment"" offered to its customers to be competitive with prevailing interest rates. ""Profit Payments"" may even be adjustable and linked to an interest rate index (subject to certain caps). Sharia scholars have determined this practice to be permissible. Pricing does not change the nature of the product. Naturally, the use of an Islamic financing index, if one existed ? Would it be preferred ? My question to you is if this way of determining "Profit Payments" through interest rates permissible ? Jazakallahkhair.

Fatwa

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Publication Date

2007-03-27

Main Subjects

Economics & Business Administration
Islamic Studies

No. of Pages

2

Data Type

Fatawa

Language

English

Record ID

BIM-785727

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