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Question of the Day: If you were buying a TV today, which brand would you choose?
Islamic property finance
- Thread starter aomar296
- Start date
Suspect99
Executive Member
I went this route through albaraka. I'll explain later when I get home. Just reply so I remember
Suspect99
Executive Member
Ok back home now.
Basically, when you get a home loan through albaraka you agree on a "profit rate" with them for a year. It's a % and it is very closely linked to the prime rate.
They basically buy the house for you and agree to sell a % back to you each year at an agreed upon profit for them.
So every year there's a negotiation. Where you can add additional funds or negotiate the profit rate. Then they agree to sell a % back to you at the profit rate. Additional funds can either be used to reduce installments or repayment period.
It works very similar to a normal bond. Notable differences are that the rate is fixed for at least a year. Islamically it's not seen as interest but profit paid. And you can't pay extra every month but only yearly. And theres no penalties for settling early.
I went for it as they gave me the best rate by far. Even with me being able to only make yearly contributions instead of monthly it was still more affordable cos of the lower rate
Basically, when you get a home loan through albaraka you agree on a "profit rate" with them for a year. It's a % and it is very closely linked to the prime rate.
They basically buy the house for you and agree to sell a % back to you each year at an agreed upon profit for them.
So every year there's a negotiation. Where you can add additional funds or negotiate the profit rate. Then they agree to sell a % back to you at the profit rate. Additional funds can either be used to reduce installments or repayment period.
It works very similar to a normal bond. Notable differences are that the rate is fixed for at least a year. Islamically it's not seen as interest but profit paid. And you can't pay extra every month but only yearly. And theres no penalties for settling early.
I went for it as they gave me the best rate by far. Even with me being able to only make yearly contributions instead of monthly it was still more affordable cos of the lower rate
Suspect99
Executive Member
Yep normal monthly payments. Which work pretty much like normal bond payments. And yearly lumpsums.
I tried to go Fnb Islamic. Can't remember the exact details of how they worked. But the rate they gave me was ridiculous. Only advantage was that it was fixed. I didn't try Absa
naeem
Expert Member
They must have changed their rules about the yearly negotiations. When i applied about 8 years ago. My plan was to take out a homeloan for 20 years, but do my best to pay it off sooner. They told me - whether i pay it off in 2 years, 10 years or 20 years, the total price will alway be the same.
Suspect99
Executive Member
I took mine out 3 years ago. I could pay in extra every year
HavocXphere
Honorary Master
I still don't understand how calling the interest something else makes it acceptable...
Suspect99
Executive Member
Yeah I also have a problem with it. Its skirting the rules. They claim that they are selling a percentage back to you at a profit rate. But it's basically interest. Not much difference.
Sadly there is really no alternative that exist to us. It is essentially the lesser of the 2 evils. The theoretical model is fine as it is meant as a partnership between the bank and the individual and both parties are meant to share the risk
I bought my house in Abu Dhabi under the Ijarah concept (HSBC Amanah). The bank essentially buys the house and lease it to you for a monthly fee with a promissory note that they would transfer the property into your name after the agreed upon term.
http://www.sabb.com/en/financing/home-finance/
http://www.sabb.com/en/financing/home-finance/
which is why I said previously in another thread that there exists no real sharia compliant financial products. In the same way some people put halaal signs outside their food shops to attract muslim customers, so do financial houses put sharia compliant stamps on finance products to get muslims to purchase them
I have heard though of people coming to agreements with banks where essentially the bond value plus all interest over the bond period is grouped into one lump sum figure, and the person pays off the new "capital" figure.
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naeem
Expert Member
i stand to be corrected but I think the biggest difference between the islamic and traditional homeloan structure is that the interest (or profit as they put it) is fixed and not compounded and does not shift with rates announcements.
How i understood it is that the bank 'buys' your property from the seller and is now the owner. And they then sell it to you at another price (higher obviously to make a profit)
The profit they make is usually based on the interest rate of the country at the time of the transaction.
so from day 1 you know exactly how much you'll pay and what the totals are. Even if you miss a few payments, total value owing remains the same. Off course islamic or not, they'll repo your ass out soon enough if you keep defaulting (assuming no bank boots you out after 1 or 2 missed payments right?)
How i understood it is that the bank 'buys' your property from the seller and is now the owner. And they then sell it to you at another price (higher obviously to make a profit)
The profit they make is usually based on the interest rate of the country at the time of the transaction.
so from day 1 you know exactly how much you'll pay and what the totals are. Even if you miss a few payments, total value owing remains the same. Off course islamic or not, they'll repo your ass out soon enough if you keep defaulting (assuming no bank boots you out after 1 or 2 missed payments right?)
Suspect99
Executive Member
It shifted exactly the same as prime lol. Only had it for 2 years then sold though
As far as missed payments go, 3 consecutively is considered "Default" at which point they will likely begin the process of kicking you out.
Kloofvreter
Honorary Master
So what's the point of this?
