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7 years ago  ::  Jan 14, 2008 - 11:58AM #1
endgame
Posts: 122
Asalaamualaikum all,

From my understanding, receiving or giving of Riba in islam is prohibited. Do you guys believe Interest as it is today is the Riba that is talked about in the quran. If so, how do people deal with home mortgages? Of course, there are options like islamic financing which I feel is another way of collecting interest but going at it the round about way. Is interest for what it stands for today haram? Or is it excessive interest that the Quran specifies as haram? Is there really no limit to profit on something in islam eventhough it might be way higher than market value? Was it not the intent in the quran to eliminate unjust profit by talking about Riba? Is money not a product/good in today's world and therefore, banks charging "interest or a fee" for giving this service/good to the consumer are not really dealing with Riba?

I would like to hear the opinions of everyone on this (especially, those among us that are well versed in finance and economics)?

Miraj,
What is your opinion on this subject?
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7 years ago  ::  Jan 14, 2008 - 12:39PM #2
USMuslim
Posts: 167
There are two main players in this field in the US--Guidance Financial and LaRiba. Guidance is licensed in more places than LaRiba, however LaRiba says that's because some markets are not good risks for their investors (i.e., Washington, DC area).
There are other ways to finance a home without interest. This magazine had a good article on the topic, more for the layperson, but it is a primer on the options available in this country to Muslims who choose not to use interest.
https://www.americasmuslimfamily.com/am … er2007.asp
It is an older issue, but I guess you could order back issues. I thought it was a good article, the lady who wrote it owns several houses that she bought without any interest or the sharia-compliant guys.

I know of many scholars who have said if it costs your family more money to rent a home than it costs you to buy with interest, or in some cases of very large families to whom no one will rent to them, it is permissible to buy a conventional mortgage with the intention of paying it off as quickly as possible. I'm not sure I that's valid, but I feel for the large families, who are new immigrants and have 6-8 children--when we lived in the DC area, these families couldn't find a place that would even rent to them. I'm guessing there aren't a lot of landlords who want to rent their 3 bdrm condo or house to a family of 10-12 persons!
We currently rent our home in the new city we have had to relocate to, We sold our home with a mortgage 9 years ago, intending never to take a conventional mortgage again. We're still saving, and hoping to live in a place where the real estate prices are more reasonable and available for a sharia-compliant loan.
When we were in DC, I was amazed at the real estate agent (who was Muslim) who told us he could get us into a home we couldn't afford (prices are outrageous there) with zero down payment...he was pushing an interest-only loan broker on us. I said, "You are a Muslim and you are telling me I should buy a house and only pay riba for it for five years?" I couldn't believe it, but I know he was putting the Somalians into these homes left and right. I worry that now they are going to be homeless with what is happening with the interest rates resetting. I guess they never owned those homes to begin with...
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7 years ago  ::  Jan 14, 2008 - 12:55PM #3
endgame
Posts: 122
salaam sis,
Thanks for responding. I am aware of the two institutions and the products they offer. My point however was I feel that the scholars that advocate these products got it wrong on this one. I understand that they say that they are buying something together with the actual buyer as a profit/loss investment and they are not just lending money and charging interest. If you really look into it, they are still not assuming any risk for the buyer and they are essentially doing the same thing as charging interest but calling it something different because they are the co-owners of a property. Is it the best option available for muslims or a lesser evil? Maybe in some situations but sometimes conventional mortgages are cheaper than these so-called "halal" loans. Wasn't the whole point for the whole riba thing to be not unjust and charge higher than market value. My question is if riba/usury really is talking about interest. If so, then both conventional or islamic loans are haram in my opinion. If not and a case can be made for this, then neither is haram. Some scholards say that charging money on money is haraam. When did this come about? During the Prophet's  (PBUH) time, was it not a barter economy and money wasn't a medium of exchange. I have also heard of stories where the Prophet (PBUH) accepted younger animals (camels I think) for an older one which was given to him sometime before (Not sure how accurate my memory is on this one.) So how did we come about to charging money on money as being haram and if money is not a product in today's world.

I think the best/safest approach is to stay away from owning a home unless you have the money to pay for it upfront but how realistic is that?
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7 years ago  ::  Jan 14, 2008 - 1:09PM #4
USMuslim
Posts: 167
[QUOTE=endgame;212870]salaam sis,

I think the best/safest approach is to stay away from owning a home unless you have the money to pay for it upfront but how realistic is that?[/QUOTE]

It is quite unreachable for the average family when the median home prices in most metro areas is between $200,000 and $400,000. Really, order that magazine, I learned about a lot from it; the author talks about all this and also talks about some very good options for buying a home without the sharia-compliant guys, like co-ops and other ways. She makes no judgment on what's preferable, just what's feasible and available. I was impressed with her own personal investment strategy, although it seems she lives in a more reasonably priced area than I do!
I think the Sharia compliant model is based on the declining balance theory. If you default on the loan they them, they are left holding the property less your investment into it, regardless if the market has tanked or not. Isn't an investor in a property entitled to rent the property and thus make a profit on his investment? Isn't this like buying shares in the investment? I'm no expert and I'm not making any assertions in this regard. I really dislike financial matters and wish we did still live in a bartering society.
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7 years ago  ::  Jan 14, 2008 - 1:19PM #5
USMuslim
Posts: 167
[QUOTE=endgame;212870]salaam sis,


I think the best/safest approach is to stay away from owning a home unless you have the money to pay for it upfront but how realistic is that?[/QUOTE]

It's very difficult being a renter when you have kids.
1. You are always at the mercy of your landlord, he can decide to sell the property you are living in when your lease is up and you have to move regardless if your kids are in the local schools, etc.
2. You don't feel vested in the community because you feel as if things are temporary. You don't end up feeling "settled".
3. You often cannot find a large enough home to rent without paying a high premium for it. If you have one kid, it's not hard to find a decent place, but try renting a home with a yard and a safe place for your three kids to play outdoors. We pay a huge percent of our income for rent, just so our kids can ride a bike down the street without worrying about having them rundown in heavy traffic, or  play outside on grass instead of asphalt! You are looking at a rent that often is more expensive than a mortgage and of course there is no tax deduction for rent...I just always remember Allah will give us a deduction in the hereafter if we are renting for His sake!
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7 years ago  ::  Jan 14, 2008 - 5:09PM #6
Yodalady_AA
Posts: 291
Unfortuntely in this day and age, renting is the only solution for a lot of young familes.  The key is to find somewhere that is somewhat rent controlled and perhaps has a wide diversity of renters, where you may find other Muslims.
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7 years ago  ::  Jan 14, 2008 - 7:00PM #7
need4truth
Posts: 39
Salaams,

You may find *this series* at muslimmatters.org of interest.

Pun not intended, until I realized what I typed. :)

I've struggled with the "interest question" for a very long time. I'm going to be fresh out of grad school in a few months iA, so I soon will be dealing with all my student loans and the possibility of finding a property beyond the conventional apartment.

The way I've always thought of interest is this: you are paying the bank or the bank is paying you for a lending service. It's as simple as that. Since I store my money in the bank and they use it, they pay me a fee for my service. If I take out a loan to fund my education, they charge a fee (interest) for their service.

However, I still keep all my money in my interest-free checking, because I simply can't make up my mind. The last time I was at the bank to deposit checks, the clerk seemed a bit alarmed as asked me to sit down with a banker because I had all my money in my interest-free checking account. He was shocked, to say the least.

I know someone who got a mortgage with Guidance. He said basically all the documents he signed were all the regular docs used for a typical mortgage, and then he signed a useless piece of paper from Guidance, stating that the fees he would pay Guidance were "not considered interest."

My ex FIL worked for an Islamic bank in the ME. He said that it's all the same behind the scenes, they just use different terms to make it seem like it's halal.

Very tough questions, to say the least. I'm currently considering investing in *Amana Mutual funds* since I don't particularly like having all my money fester in my checking.

n4t

P.S. Has anyone complained about hyperlinks being the same color as text? I find it quite annoying.
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7 years ago  ::  Jan 15, 2008 - 8:41AM #8
IreneAdler
Posts: 2,849
[QUOTE=need4truth;213818]

P.S. Has anyone complained about hyperlinks being the same color as text? I find it quite annoying.[/QUOTE]



Yep! And here’s my link to what I posted:

http://community.beliefnet.com/forums/showthread.php?t=7640


Irene.
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7 years ago  ::  Jan 15, 2008 - 9:42AM #9
USMuslim
Posts: 167
[QUOTE=need4truth;213818]Salaams,


I know someone who got a mortgage with Guidance. He said basically all the documents he signed were all the regular docs used for a typical mortgage, and then he signed a useless piece of paper from Guidance, stating that the fees he would pay Guidance were "not considered interest."

My ex FIL worked for an Islamic bank in the ME. He said that it's all the same behind the scenes, they just use different terms to make it seem like it's halal.

Very tough questions, to say the least. I'm currently considering investing in *Amana Mutual funds* since I don't particularly like having all my money fester in my checking.

n4t
[/QUOTE]

I think that they (Guidance, etc.) have to front everything like a regular mortgage because of the state banking regulators. In many states, it is actually illegal to purchase a home mortgage without interest.

Amana Mutual Funds is an A-rated fund and outperforms many mainstream funds. There have been some great articles on the company in the WSJ and other publications.
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7 years ago  ::  Jan 15, 2008 - 10:22AM #10
IreneAdler
Posts: 2,849
[QUOTE=USMuslim;214898]I. In many states, it is actually illegal to purchase a home mortgage without interest.

[/QUOTE]

Really? Illegal? I find that difficult to believe. I am sure it is not good business practice for a lending institution to provide an interest-free mortgage. They have to make money somehow. After all, providing a mortgage is providing a service and they should be paid for this.

Could you tell me where this information is please?

Thanks.

Irene.
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