Example: Aaban wants to own a home in Australia
Australian resident Aaban has decided that he would like to settle down and buy a home in the outskirts of Auburn, Sydney.
As the Islamic religion forbids borrowing money to be repaid with interest, Aaban approaches a local financial institution that provides alternative forms of lending. The lender conducts a preliminary assessment of Aaban's financial situation and issues a conditional letter of approval on behalf of the funder.
The property he'd like to purchase is valued at $310,000. With his $60,000 deposit, he needs help coming up with the $250,000 difference before the house can be transferred to him.
With the lowest variable rate of 5.2% offered by the lender, he'll have to pay an extra $197,225 on top of the $310,000 principal over 25 years. Aaban enters into a rent-to-buy mortgage agreement and his monthly rental payments are made through direct debit from his nominated bank account.
A representative from the financial institution tells Aaban that as he makes rental payments, the provider's equity in the property will diminish while Aaban's equity will increase. By the time the debt is extinguished or if he wishes to sell in the meantime, ownership of the property transfers solely to Aaban.
* This is a fictional, but realistic, example.
Who is the title-holder in Non-islamic and Islamic home loans?
You’d need to check with a specific lender to be sure, and get legal advice, but my understanding is the lender’s name is on the title until you’ve paid the full value of the home. It’s effectively a lease to own contract.
Hi! Is it safe to take home loans from other institutions rather than the bank?
Hi Hasan,
Thanks for getting in touch with Finder. I hope all is well with you. 😃
If you are asking about the level of safeness and security of applying for a loan from institutions other than banks, the answer is yes. Most non-bank home loan providers would provide a safe environment for you to obtain a loan from. Of course, you should do independent research to confirm that the lender you are working with is registered and legitimate.
If you need to explore your options, you may want to speak to a mortgage broker. They have the necessary knowledge and experience to help you find the best lender that meets your needs, preference, and budget.
Moreover, before you apply for a specific loan, please make sure that you’ve read the relevant T&Cs or PDS of the loan products. You can also check the eligibility requirements to determine whether the product is right for you or not.
I hope this helps. Should you have further questions, please don’t hesitate to reach out again.
Have a wonderful day!
Cheers,
Joshua
Hi. I am a Muslim women engineer. I recently have got a permanent job in ACT. Before this job, I was jobless for more than 1 year. I am living here on permanent residency. I have some savings of about AUS $ 40,000 and my annual salary is more than $ 90,000/=. I want to buy a property while fulfilling my religious restrictions regarding Ribah/ interest. Please intimate how I can proceed.
Kind regards
Hi AN,
Thanks for your question.
You may approach any of the Islamic banking institutions listed above that offer Sharia-compliant products to know your options. Better still, you enlist the services of a mortgage broker who can best help you find a suitable financing.
Cheers,
Liezl
how the accounting treatement for islamic home finance should post?
Hi Anwar,
Thank you for your question and for contacting finder.com.au we are a financial comparison website and general information service we are not mortgage specialists/home loan providers so can only offer general advice.
I’m afraid we may not be able to provide you with an answer to that question. The accounting treatment will be determined by the lender/bank that offers the Islamic Home Loan.
Regards,
May
I am a Muslim who lives in Indoensia, Looking for Loan amount of U$55,000, I urgently Need to Recover my Family and Establish Muslim Fashion Store
Hello Abdul,
Thank you for your question.
Basically, to qualify for an Islamic home loan. An Islamic home loans are offered as full-documentation products. This means you’ll need to provide evidence of funds for your deposit, your savings history, employment history as well as information related to any other assets or liabilities you have.
If you wish to compare your Islamic home loans, in the above section “Are there any Islamic banking institutions in Australia?” you’ll find list brokers and providers that specialize in Islamic home loans.
I hope that helps.
Cheers,
Harold