What is Islamic Finance
An Islamic mortgage lets you borrow money for a home while still following Sharia law. You’re not allowed to lend or take money from someone under Sharia law if interest is being gained. They do not involve the same lending or borrowing that traditional mortgage do. Islamic lender buys the property on your behalf. You then make weekly, fortnightly or monthly payments. But instead of interest, these payments are like rent. Part of the rent goes towards buying the house from the bank. At the end of the term, you’ll have paid for the whole property.
An Islamic mortgage will have a “rental rate” shown as a percentage. The rental rate changes based on the lender rate. It’s used to calculate how much rent you need to pay.
Type of Islamic finance
Ijara (Lease): This is when the bank buys the property you want and then rents it to you for a fixed term at an agreed monthly cost. You’re given ownership of the property at the end of the term.
Diminishing Musharaka (Partnership): This is a co-ownership agreement where you and the bank each own a share of the property. Part of your monthly payments will go towards buying some of your bank’s share.
Muharaba (Profit): This is when the bank buys the property for you and then sells it to you at a higher price. You’ll pay the money you owe the bank in equal payments over an agreed term.
How Islamic finance different to others
The fundamental difference is that according to some scholars, an Islamic mortgage complies with Sharia law, whilst a conventional one does not. In other words, an Islamic mortgage is halal as interest not involved.
Another difference is the way you own the property and risk profile after you take out your loan. Under a conventional mortgage, you own the freehold of the property. With Islamic finance legal title held by client. Once final rent is made by the client, the funder will transfer ownership to the client
Sharia Compliant
Sharia Law: Our all-home finance products comply with sharia law managed directly by funder while maintaining the Australian credit law.
Australian Law: Our home Finance is accredited with the Mortgage and Finance Association of Australia and all other related bodies to comply with Australian Law.
FAQ
How much money can I borrow?
How much do I need for a deposit to buy my first home?
How often do I make home loan repayments - weekly, fortnightly or monthly?
What is the First Home Owner Grant and can I get one?
What fees/costs should I budget to buy my first home?
- Stamp duty — This is the big one. All other costs are relatively small by comparison. Stamp duty rates vary between state and territory governments and also depend on the value of the property you buy. You may also have to pay stamp duty on the mortgage itself. To estimate your possible stamp duty charge, visit our Stamp Duty Calculator.
- Legal/conveyancing fees — Generally around $1,000 – $1500, these fees cover all the legal requirements around your property purchase, including title searches.
- Building and Pest inspection — This should be carried out by a qualified expert, such as a structural engineer, before you purchase the property. Your Contract of Sale should be subject to the building inspection, so if there are any structural problems you have the option to withdraw from the purchase without any significant financial penalties. A building and pest inspection and report can cost up to $1,000, depending on the size of the property. Your conveyancer will usually arrange this inspection, and you will usually pay for it as part of their total invoice at settlement (in addition to the conveyancing fees).
- Lender costs — Lenders will charge establishment fees to help cover the costs of their own valuation as well as administration fees. We will let you know what your lender charges but allow about $1,500 to $2,000.
- Mortgage Insurance costs — If you borrow more than 80% of the purchase price of the property, you’ll also need to pay Lender Mortgage Insurance. You may also consider whether to take out Mortgage Protection Insurance. If you buy a strata title, regular strata fees are payable.
- Ongoing costs — You will need to include council and water rates along with regular loan repayments. It is important to also consider building insurance and contents insurance. Your lender will probably require a minimum sum insured for the building to cover the loan.