10 Reason Why People Choose Conventional Mortgages
Financial Considerations
Smaller Deposit
Conventional loans require less upfront than Islamic financing, which often needs 10% deposit and fees, making them more accessible.
Lower Cost
Conventional loans often have lower rates than Islamic financing, leading to lower repayments and faster home ownership.
Govt Incentives
In Australia, government programs offer 5% deposits without mortgage insurance, unavailable with Islamic finance, enhancing conventional loan appeal.
Financial Considerations
Smaller Deposit
Conventional loans require less upfront than Islamic financing, which often needs 10% deposit and fees, making them more accessible.
Lower Cost
Conventional loans often have lower rates than Islamic financing, leading to lower repayments and faster home ownership.
Government Incentives
In Australia, government programs offer 5% deposits without mortgage insurance, unavailable with Islamic finance, enhancing conventional loan appeal.
ISLAMIC VIEWS
Asset-Backed Financing
Some Muslim scholars argue that asset-backed financing is essentially a trade transaction and not interest-based (RIBA). They believe it is permissible because it involves buying and selling assets rather than lending money at interest.
Definition of RIBA
Inflation erodes the purchasing power of money over time. This makes it reasonable to expect that you may need to pay more in the future, justifying the additional cost associated with long-term home financing.
When it is Necessary
Fatwa of “Principle of Necessity” was provided by European Council for Fatwa and Research based on the following guideline:
"He has already explained and specified to you what He has forbidden to you—except when compelled by necessity ."
Surah Al-Anaam, verse 119
Additional guidance was derived from:
"He Who has chosen you, and laid upon you no hardship in the religion."
Surah Al Hajj, verse 78
"It is not Allah’s Will to burden you."
Surah Al Ma’idah, verse 6
Principles of Fatwa are:
You lack the financial means to purchase property outright.
The property in question is your primary residence.
Islamic finance alternative not available to you.
ISLAMIC VIEWS
Asset-Backed Financing
Some Muslim scholars argue that asset-backed financing is essentially a trade transaction and not interest-based (RIBA). They believe it is permissible because it involves buying and selling assets rather than lending money at interest.
Definition of RIBA
Inflation erodes the purchasing power of money over time. This makes it reasonable to expect that you may need to pay more in the future, justifying the additional cost associated with long-term home financing.
When it is Necessary
Fatwa of “Principle of Necessity” was provided by European Council for Fatwa and Research based on the following guideline:
"He has already explained and specified to you what He has forbidden to you—except when compelled by necessity ."
Surah Al-Anaam, verse 119
Additional guidance was derived from:
"He Who has chosen you, and laid upon you no hardship in the religion."
Surah Al Hajj, verse 78
"It is not Allah’s Will to burden you."
Surah Al Ma’idah, verse 6
Principles of Fatwa are:
1) You lack the financial means to purchase property outright.
2)The property in question is your primary residence.
3) Islamic finance alternative not available to you.
CRITICISM OF ISLAMIC PRODUCTS
Can’t Avoid Banks
Most financial activities, like salaries, use banks, making avoiding conventional systems tough. Without a full Islamic system, many opt for conventional banking.
Different Views on Islamic Products
Due to local laws people believe this may affect compliance. Some argue that Ijarah resembles conventional mortgages.
Islamic Products Need Upgrade
Critics say Islamic products, based on ownership risk-sharing, are simplistic, overlooking buy/sell decisions, occupancy and tax.
CRITICISM OF ISLAMIC PRODUCTS
Can’t Avoid Banks
Most financial activities, like salaries, use banks, making avoiding conventional systems tough. Without a full Islamic system, many opt for conventional banking.
Different Views on
Islamic Products
Due to local laws people believe this may affect compliance. Some argue that Ijarah resembles conventional mortgages.
Islamic Products
Need an Upgrade
Critics say Islamic products, based on ownership risk-sharing, are simplistic, overlooking buy/sell decisions, occupancy, tax, and legislative aspects.
Islamic Wisdom in
aussie rules
Wisdom of Islamic Finance
The wisdom inherent in Islamic finance finds some parallels
in Australian financial regulations for conventional banking anyways:
Clear Contracts: Australian Securities and Investment Commission (ASIC) disclosure requirements ensure that all terms and conditions of home loans are fully disclosed and clearly communicated by the lender.
Responsible Lending: Under the National Consumer Credit Protection Act, lenders are required to make reasonable inquiries about a borrower's financial situation and assess whether a loan product is "not unsuitable" for the borrower.
Debt Overburden: APRA mandates that lenders include financial buffers when assessing a borrower's ability to repay, which helps manage excessive risk.
Safeguard against Exploitation: ASIC mandates that lenders establish internal mechanisms for resolving disputes and also join an ASIC-approved external dispute resolution program. This provides borrowers free access to contest issues with large lenders on a level playing field.
Islamic Wisdom in
aussie rules
Wisdom of Islamic Finance
The wisdom inherent in Islamic
finance finds some parallels
in Australian financial regulations for conventional banking anyways:
Clear Contracts: Australian Securities and Investment Commission (ASIC) disclosure requirements ensure that all terms and conditions of home loan are fully disclosed and clearly communicated by the lender.
Responsible Lending: Under the National Consumer Credit Protection Act, lenders are required to make reasonable inquiries about a borrower's financial situation and assess whether a loan product is "not unsuitable" for the borrower.
Debt Overburden: APRA mandates that lenders include financial buffers when assessing a borrower's ability to repay, which helps manage excessive risk.
Safeguard against Exploitation: ASIC mandates that lenders establish internal mechanisms for resolving disputes and also join an ASIC-approved external dispute resolution program. This provides borrowers free access to contest issues with large lenders on a level playing field.
Adopt at a Personal Level
Navigating the financial world with Islamic principles in mind can sometimes be challenging. However, by adopting certain practices in your personal financial transactions, you can ensure they resonate with core Islamic values.
For Instance:
a) Avoid Excessive Debt: Only borrow what you can realistically repay.
b) Pay On Time: Make all your payments on time to avoid the accrual of compound interest, which is not permissible in Islamic finance.
Want to delve deeper into aligning your finances with Islamic principles?
Book a session with us. Our experts are here to guide you every step of the way, ensuring your financial decisions are both smart and Shariah-compliant.
Adopt at a
Personal Level
Navigating the financial world with Islamic principles in mind can sometimes be challenging. However, by adopting certain practices in your personal financial transactions, you can ensure they resonate with core Islamic values.
For Instance:
a) Avoid Excessive Debt: Only borrow what you can realistically repay.
b) Pay On Time: Make all your payments on time to avoid the accrual of compound interest, which is not permissible in Islamic finance.
Want to delve deeper into aligning your finances with Islamic principles?
Book a session with us. Our experts are here to guide you every step of the way, ensuring your financial decisions are both smart and Shariah-compliant.
Burj is a specialised mortgage broking firm based in Hills District of Sydney. Helping homeowners and property investors grow their wealth faster.
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Infini Concepts Pty Ltd (ABN: 48 640 941 279) trades under ASIC Credit License: 556407
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Burj is a specialised mortgage broking firm based in Hills District of Sydney. Helping homeowners and property investors grow their wealth faster.
Follow us
Infini Concepts Pty Ltd (ABN: 48 640 941 279) trades under ASIC Credit License: 556407
*All applications subject to assessment and lender approval.
This site is not part of the Facebook website or Facebook Inc. Additionally, This site is NOT endorsed by Facebook in any way. FACEBOOK is a trademark of FACEBOOK, Inc.