Mortgage in Islam: How does Islamic mortgage work?

Economics Contributor
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Mortgage in Islam
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Land mortgage is very prevalent in today’s society. But most people have no idea what the Islamic rules of mortgage are. So let us know in this article some of the Shariah rules about a mortgage. If you’re a Muslim and want to follow Sharia law, an Islamic mortgage offers a way to buy a home while doing so. An Islamic mortgage could give you peace of mind from an ethical perspective even if you are not Muslim.

Meaning of mortgage in Islam

The word used in Arabic is – ‘Rehen’. In the lexical sense, it literally means to confine something. In Islamic terminology, a mortgage is said to be the seizure of a thing in exchange for a certain amount of money, so that in return one can recover one’s dues with it.

The mortgage system is legal in Islam; However, in this case, the Shariah principles must be followed. You have to understand what is meant by the mortgage system in Islam. So you have to give or take a mortgage from within the boundaries of the law.

Rule of the mortgage in Islam

The validity of the mortgage system is proved by the Quran-Sunnah. The following is a brief list of documents-

Regarding the legitimacy of the mortgage system, Allah says, “And if you are on a journey and cannot find a scribe, then a security deposit [should be] taken. And if one of you entrusts another, then let him who is entrusted discharge his trust [faithfully] and let him fear Allah, his Lord. And do not conceal testimony, for whoever conceals it – his heart is indeed sinful, and Allah is Knowing of what you do.” (2: 263)

There is a hadith about the legality of the mortgage, the Prophet (SAW) himself took advantage of the mortgage. Narrated Ayesha (R), The Prophet (SAW) bought the rest of the food from a Jew (on the condition of paying the price on time) and then pledged his armor as collateral for the price. (Muslim)

Regarding the interpretation of this hadith, Imam Nawawi (Rah) said, “This hadith proves the validity of the mortgage. Even the legitimacy of mortgaging weapons to infidels is proved. And this is the accepted opinion of the four schools of thoughts.”

The conventional method of the mortgage in some countries

An item is mortgaged to guarantee the recovery of the loan. This also ensures that the lender can recover from the mortgaged item later even if the loan is not recovered. It is also mentioned in the Holy Quran. As mentioned in the previous verse (2: 283).

From the verse, it is understood that mortgaged goods or land are deposited with the mortgagor. Thus, it is unlawful and Haram for the mortgagor to gain any benefit from the mortgaged land, such as producing crops. This cannot be done even with the permission of the mortgagor. This is because the mortgagee’s profit from the mortgaged land includes interest, which is clearly haram.

Ibn Sirin (Rah) said: A man asked Abdullah ibn Masud (R), “A man has mortgaged a horse to me and I have used it for riding.” Ibn Masud (R) heard this and said, “The benefit you have gained from it by climbing will be considered as interest.”

The famous Tabi’i Qazi Shuraih (Rah) was asked, “How is interest paid?” He replied, “If a mortgagee drinks the milk of a mortgaged cow, it will include interest.”

A valid alternative to the conventional land mortgage system

Method 1: If the mortgagee wants to benefit from the mortgaged land, he can adapt the method of canceling the mortgage agreement and adopting the method of a long-term lease. This means that until the loan is repaid, the lender will lease the land and pay its fair rent to the landlord. However, in this case, the loan and the lease agreement must be different. One cannot be conditional on the other by combining two agreements.

What is a lease?

Lease means to rent. The lease of land is valid for any period. It will be permissible to use the land for legal purposes which do not cause any significant damage to the land. If the lessee is allowed by the landowner to cultivate any crop in general, he may cultivate any crop. However, it is not permissible to lease a garden with trees.

Method 2: The borrower will enter into a ‘bi-bil-wafa’ agreement with the mortgagor. This means that the debtor will sell his land to the mortgagor on the promise that the mortgagor will sell his land to him again after the loan is repaid. In this case, as long as the land is in the possession of the mortgagor, he will be able to enjoy it as the owner.