the interest free mortgage

8/6/2019 The Interest Free Mortgage

http://slidepdf.com/reader/full/the-interest-free-mortgage 1/4

The Interest Free Mortgage: How and Why.

M uslims may not accept interest as a payment nor can

they accept a transaction that will knowingly andinevitably accrue interest on their debts. My mother (anon-Muslim banker) has asked me before ´how is thateven possible?µ The answer: it basically isn·t,unfortunately. I cannot, no matter how hard I tryconvince my bank to stop giving me interest. I have triedwriting to them, I have tried seeing the account manager

about it, I have tried telling them to direct deposit the money into their ownaccount instead of mine, I have even tried threatening to sue for religiousdiscrimination (admittedly, I·m not very intimidating) none of it works, they willnot let me get away with it. If they won·t even let me off the hook for unjustlytaking their money, imagine the roadblocks to me trying to avoid payinginterest on the money I periodically end up owing! Alas, in a perfect worldwhere people didn·t worship money there is such thing as a mortgage, and Iwill describe just what it looks like and why you would want to be on either endof it.

Imagine a house. No, not that house, try a different one. We·re imagininga $100 000 house, okay? So lose the pool, maybe a bedroom or two, I need toround off the numbers so the garage is not attached. Got it? Good. You want tobuy this house, or if you are exceedingly wealthy, you own this house andwould like to sell it for a neat profit. An interest free mortgage works like this: If someone owned that house, in that location, and wanted to rent it they wouldtypically charge $500 for rent (wow, that was a convenient number!), utilitiesextra. In fact this is how much the value of renting that property has beenappraised professionally as. That means that the 100% owner of the house gets$500 for renting it out, the 100% renter pays $500. Now, imagine someoneputs down $5 000 as a down payment to buy the house, but instead of atraditional mortgage he simply buys 5% of the house (oh, that·s why we can·thave a pool). That means the first month of rent he already owns 5% of thehouse and is thus entitled to 5% of the rent, making his share of the rentpayable to the order of only $475.

He has agreed, to pay the current 95% owner of the house $1000 amonth instead of just $475 and after the cost of rent the remaining cash will go



to buying out shares of the house. So the first month the 5% owner pays $475rent and $525 on buying the house (principle). After that month the man wouldown $5 525 or 5.525% of the house, and his rent would be $472.38. The rentwould continue to go down as the man pays and increases his ownership of thebuilding until finally he could be the 100% owner of the house! YAY! In the endthe man has bought a house for only $1000 a month and the seller has turneda profit on selling the house by renting. Sort of like rent to own, isn·t it? So, it·sthat simple to buy a house without having to pay interest, but why would youbother when there are so many *great* mortgage deals out there?

Now it·s time to be a good home buyer and check the market. Let·s moveto Warren Michigan. Why? There are plenty of $100 000 homes there! I justfound a 4 bedroom with attached garage for $105 000 (picture above), let·s say

you·re able to wrangle it down to $100 000 even because the roof needs to bere-done or some such thing. Now I go to Bank of America and calculate themortgage to find that a 15 year fixed-rate would be $721.04 and a 30 yearfixed-rate would be $506.69. Next step, go to Guidance Residential and seewhat their rates are like because they do mortgages the interest free way I justdescribed. Guidance estimates a 15 year mortgage to cost $711.71 and a 30

year mortgage $483.14 per month. Ten or twenty bucks doesn·t seem like



much, but keep in mind over the course of three decades it ends up as $7500,roughly translated to a new roof.

Even more beneficial to the seller is the fact that you are making aboutthe same as the bank, but the cost is just low enough that you will have a

competitive advantage. Another benefit for the buyer is that they own thehouse, so if they can·t continue to pay they can simply rent it at a reduced rate(which isn·t so bad for the seller since the ones who occupy the house will bethe ones responsible for its upkeep). Also, the property taxes would not be100% theirs so there is a hidden financial incentive for buyers.

The last, and I feel most important, difference is that an interest freemortgage is functional in a modern Western economy and it is not based on theVictorian principles of poor-tax that run most of the rest of the economy. In theVictorian age most rich folk thought the poor were poor because they were lazy,unclean and immoral. Many people still think that, and so the economy is builtto create this illusion by imposing poor-taxes. The poorer you are the worse job

you·ll get because of lack of resources and connections, and the worseeducation, and all the things that would enable you to achieve the AmericanDream are stripped away from you and given to a rich kid. Mortgages are anexample. The only reason you are paying interest for a house in a traditionalmortgage is because you can·t afford it. You are being taxed 4% because youare poor, and that money goes straight to the rich who will use it to exploit andtax more poor people, making them more rich. An interest-free mortgage on the

other hand is a business transaction. There is no assumption of lower financialor social status (after all it is a good calculated business venture that manyrich folk would invest in) and the goal is not simply to extort money out of those who have less money that you, but rather to turn a profit on a businessdeal and get the full value of your property. I know there are nay-sayers whowill complain that the system is the same, you·re paying all of ten dollars less,there is only an imaginary difference, but I will contend that that difference inthe imagination is very important. It is the difference between a bank ownerseeing you as lesser or an equal and the difference of self-respect andmotivation for the buyer, it is also a matter of halal and haram or permissibleand sinful acts, because it is the intention that is judged by Allah as well as theaction, so if you intend to extort people you will get punished, but if you intendto have a business deal that turns a profit (even the same profit as theextortion) you will be rewarded.

Lastly, an interest free mortgage done in this manner gives the buyerpeace of mind and a few options to fit his financial situation. Option one is that



he could rent the place out to someone else. If he rents the place and managesit instead of living in it he would get an increasing share of the rent paid aslong as he is putting money down to buy the house, then if he can·t afford tobuy the house for a while both parties involved are still making money, noforeclosure necessary, no bad credit. Second; in the guy completely defaults onthe rent and principle he still owns a chunk of the house, his ownership shareof the house can be reduced by the amount he owes on rent, but he can·t bekicked out until he owns 0%. So, if the guy loses his job and gets in a horribleaccident he may be set-back, he may lose some money or some potentialincome, but he still has his house for as long as he owns more of it that therent costs which could be years if he is deep into a long-term mortgage.

All in all the interest free mortgage, or halal mortgage is a much betteralternative to current banking systems because it gives peace of mind, stability,

and dignity to the buyer while still returning similar profits for the seller.Furthermore it is not designed to exploit the poor, nor does it come from asystem of Victorian elitism. The last point is that a proper halal mortgage mustbe done with real, existing property and money, so the real-estate bubblescreated by banks are less probable and when they pop they are less damagingbecause the effects can be spread over a longer time-frame as ownership ratesslowly drop rather than a lightning-fast foreclosure induced depression of property value. There are many obstacles to the widespread use of halalmortgages, but I would suggest taking a quick look online just to get more info,

you might find a good financing option for yourself, your business, or yourfamily, or you might simply be a Google statistic, either way you·d help out alittle.

Peace be upon you.

the interest free mortgage

Documents