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What Is the Difference Between Riba and Mortgage?

02 September, 2021
Q As-salamu `alaykum! Would you please send me some information on the basic differences between riba and mortgage, and on the right way in Islam to do mortgage? May Allah bless you.

Answer

Wa`alykum as-Salamu wa Rahmatullahi wa ZBarakaatuh.

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

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In this fatwa:

1- Mortgage means getting finance from a bank, conventionally on the basis of interest and recording a lien, normally, on the same house to the benefit of the bank.

2- Riba is an increment in an exchange contract that has no Shari`ah recognized counterpart.


On the difference between riba and mortgage, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:

The International Webster New Encyclopedic Dictionary defines mortgage as a conditional transfer of a property to a creditor as security for repayment of money.

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So, in practice of home purchase financing in the United States, mortgage means getting finance from a bank, conventionally on the basis of interest and recording a lien, normally, on the same house to the benefit of the bank until full payment of the amount financed and interest accrued is done.

Normally, payments are made equal and monthly so that each installment consists of the interest due on the balance from last month and a portion redeemed of the principal financed.

What Is Riba?

On the other hand, riba in the Arabic language is increase or increment. Muslim scholars define riba in the Shari`ah as an increment in an exchange contract that has no Shari`ah recognized counterpart.

The OIC Fiqh Academy of Jeddah and the Al-Azhar Islamic Research Academy, in Cairo, as well as the overwhelming majority of Muslim scholars ruled that interest that appears in banking transactions is the same Riba that is not permissible in the Quran.

Finally, Islamic financing may have liens on any property as a security for repayment of the money financed. I mean, it may have mortgage, in the language meaning, without being based on interest Riba.

May Allah guide you to the straight path, and guide you to that which pleases Him, Amen.

Allah Almighty knows best.

Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.