Loans for Islamic Borrowers

A New Australian Lending Product 

In Islamic law some Muslims won’t accept your standard home loans which are offered in Australia because Islamic law forbids the charging of interest on any loan taken.

A new Australian lending product targeted towards Muslims (Islamic Finance), offers ways of lending that will remain within Muslim beliefs, is now growing internationally to nearly close as US$1 trillion.

This same home loan product could become a real force in Australia as well in the not too distant future.

There are several ways to avoid having to pay interest repayments.

Would be to pay for a property entirely in cash, but few can afford to do this in Australia.

The other option would be to borrow from friends, but that also is usually not practical.

Too respect the Islamic law and get around having to pay interest on money borrowed, a purchaser will enter into a partnership with Islamic Finance lender and share ultimately the purchase risk with the Australian lender.

Instead of making interest payments, buyers pay rent (which is normally higher than market rent) to the Australian lender until they are established full ownership of the property.

The Islamic lender has taken on some of the risk in this transaction, as it essentially has made the purchase on behalf of purchaser.

The mortgage can either be seized by the funder or left with the borrower, given that it’s registered for full mortgage securities entitlement to the funder.

It’s also acceptable to use a third party’s property as security for the mortgage.

An Islamic bank lender and a traditional bank may be offering the same rates, but it’s how it’s processed that makes the difference.

Islamic finance lenders often describe the amount of money they take above the purchase price as ‘profit’.

Since charging interest is prohibited, the word ‘interest’ is avoided in most cases, although the Australian government will still require it to be used in the eventual paperwork the purchaser signs off on.