Understanding
Halal Home Finance
Introduction to Shariah-Compliant Financing
Shariah-compliant financing is a financial practice that aligns with Islamic law (Shariah). It avoids interest (riba) and promotes fairness, transparency, and ethical dealings. In Australia, the dominant structure for Islamic home financing is Ijara, where the financier and the home buyer share ownership of the property.
What is Shariah Compliant Home Finance?
Shariah-compliant means following rules and guidelines set by Islamic law, known as Shariah. It’s important in various aspects of life, including finance. In finance, being Shariah-compliant means adhering to Islamic principles and avoiding things that are not allowed in Islam.
No Interest
(Riba)
Ethical
Investment
Property
Backed Deals
Transparency &
Accountability
What is Ijara ?
Ijara is a Shariah-compliant financial model that operates like a lease-to-own arrangement. Under Ijara, the financier buys the property and leases it to the home buyer. The home buyer makes monthly payments, which include a rental fee and an amount that gradually increases their ownership stake in the property. Over time, the home buyer acquires full ownership of the property.
Let’s Break It Down
Islamic
Vs
Conventional
The home buyer and financier agree to share ownership of the property.
Lender
The home buyer alone purchases the home.
Both parties buy the home together, and ownership is determined by each party’s down payment.
Ownership
Homeownership involves managing the balance between owning the property and paying off the loan.
The home buyer makes monthly payments to the financier. These payments include a rental charge for using the home and a portion that increases the buyer’s ownership in the property.
Loan Payments
The home buyer makes monthly payments to repay the principal and interest on the loan.
Over time, the home buyer gradually buys more equity from the financier until they become the sole owner of the property.
Equity Acquisition
Throughout the loan term, the home buyer gradually pays off the entire debt.
No interest is charged, as Islamic finance prohibits the payment or receipt of interest (riba).
Interest
Interest is charged on the loan, which is a cost for borrowing the money.
The risk is shared between the home buyer and the financier. If the property value decreases, both parties share the loss.
Risk Sharing
The home buyer bears the full risk of the property value decreasing. The lender’s risk is limited to the potential default on the loan.
All transactions comply with Shariah law, which includes prohibitions on interest and certain types of investments.
Compliance with Sharia Law
Transactions are based on secular financial laws and regulations, with no religious constraints.
The financier earns profit through rental payments and gains equity as the buyer purchases it over time.
Profit & Loss Sharing
The lender earns profit primarily through interest charged on the loan.
Let’s Break It Down
Islamic
Vs
Conventional
The home buyer and financier agree to share ownership of the property.
Lender
The home buyer alone purchases the home.
Both parties buy the home together, and ownership is determined by each party’s down payment.
Ownership
Homeownership involves managing the balance between owning the property and paying off the loan.
The home buyer makes monthly payments to the financier. These payments include a rental charge for using the home and a portion that increases the buyer’s ownership in the property.
Loan Payments
The home buyer makes monthly payments to repay the principal and interest on the loan.
Over time, the home buyer gradually buys more equity from the financier until they become the sole owner of the property.
Equity Acquisition
Throughout the loan term, the home buyer gradually pays off the entire debt.
No interest is charged, as Islamic finance prohibits the payment or receipt of interest (riba).
Interest
Interest is charged on the loan, which is a cost for borrowing the money.
The risk is shared between the home buyer and the financier. If the property value decreases, both parties share the loss.
Risk Sharing
The home buyer bears the full risk of the property value decreasing. The lender’s risk is limited to the potential default on the loan.
All transactions comply with Shariah law, which includes prohibitions on interest and certain types of investments.
Compliance with Sharia Law
Transactions are based on secular financial laws and regulations, with no religious constraints.
The financier earns profit through rental payments and gains equity as the buyer purchases it over time.
Profit & Loss Sharing
The lender earns profit primarily through interest charged on the loan.
Why Choose Jazeera for Islamic Home Financing?
Jazeera specializes in Shariah-compliant home financing options, providing ethical and transparent solutions that align with Islamic principles. With our expertise, you can navigate the financing process confidently and ethically, ensuring your financial journey aligns with your religious beliefs.
Ready to make the switch?
Contact us today to explore how Jazeera’s Islamic home financing can help you achieve your dream of homeownership ethically and responsibly.
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Frequently Asked Questions
Can I get a preapproval?
Yes, you can get a preapproval. We will gather some basic information to conduct a preassessment, and if you qualify, we will prepare your application and submit it for preapproval.
What is my borrowing capacity?
We need some basic information to calculate your borrowing capacity. However, to determine your accurate borrowing capacity, we will need all relevant information and documentation.
How does Islamic finance work? How is it halal?
In Australia, most Islamic lenders provide home financing under the concept of Ijara, which is “Rent to Purchase.” All our panel lenders have Shariah Compliance certificates, which we review before accepting them on our panel. Our criteria are quite strict, and we have removed some lenders from our panel in the past.
What is the difference between conventional and Islamic finance?
Islamic financing is based on the principles of Shariah, where there is no interest (Riba). Conventional finance operates with interest (Riba).
How long does the process take for pre-approval, refinancing, and purchase?
Generally, it takes 2 to 3 weeks for full approval. However, if there is urgency, we can escalate the file. We are premium brokers with most Islamic lenders, so our turnaround times are the fastest.
How much is the stamp duty?
You can calculate the stamp duty on this website: (https://stampduty.calculatorsaustralia.com.au/).
How many applicants can I add?
You can add as many applicants as you like.
Who are the Islamic lenders that you work with?
We work with Hejaz, Meezan, Riyadh, MCCA, Ijara, and Amanah.
How much deposit do I need for Islamic finance?
You need a 10% deposit.
Can I use my super to buy a property?
Yes, but it will be under SMSF and used as an investment property.
Since the structure of Islamic finance is Ijarah, which means rent, is the property going to be under my name or the lender's?
The property will be under your name, and the lender will have the mortgage. Islamic lenders must follow the guidelines of the Australian Taxation Office.
Where does Islamic finance get its funds?
The source of funds varies by lender and by product. However, all sources of funds are verified to be Shariah Compliant by the relevant lenders’ Shariah Boards and are subject to Shariah Audit.
Do you provide car finance, personal loans, or business loans?
We provide car and business finance but not personal loans.
Is the rental agreed amount fixed?
It can be fixed or variable depending on clients requirements.
Is there a fixed repayment time for the loan?
Maximum 30 years.
Any details about what happens when missed payments occur or if we default on the property?
Financier will have a lien on the property and can take over and sell if finance goes in default.