Islamic Mortgage
Under the Sharia law of Islam, the payment or receipt of interest is prohibited, and thus a conventional mortgage could not be utilized by a practicing Muslim. Obviously this poses a problem for a potential homeowner, with home prices far too expensive to buy outright for the common consumer.
However, Islamic mortgages solve this issue by having the bank purchase the subject property outright and selling it back to the mortgagee in one of two ways. The bank will either sell the property at a higher price to the mortgagee under an installment plan, or rent it to the tenant/homeowner, and have the mortgagee pay a contribution towards the equity of the home each month until it is paid off in full. The second method is also known as “lease to purchase” because the homeowner “rents” the property while paying down principal and gaining equity.
