Q. I want to buy a house in India, my home country, but my savings cover only 60 percent of the price. A government financial institution provides help with a mortgage loan which is payable over a long period of time, so as to ease the burden. Is such an arrangement permissible?
A. Yezdani
A. The Islamic Council of Europe, which is a scholarly body with a large number of scholars, issued a fatwa that buying a house on mortgage is permissible. The council considered this as meeting a necessity, thus making the ruling one of necessity, which applies only in such circumstances. However, the council did not address other aspects in the mortgage arrangement which make it more acceptable from the Islamic point of view.
One of these is the fact that the house buyer who gets a loan receives more than the money itself. He gets the benefit of using the house for residence. The installments he pays to repay the loan are normally less than what he would have paid in rent if he were to rent the same house.
Another benefit is that his ownership of the house is complete and he owns the whole house, not a portion of it that is equal to what he paid of its price other than the loan. This means that if he sells the house before the loan is repaid in full, and makes profit, as it is the case in most situations, he gets all the profit. But the bank or the financial institution which provided the loan gets no profit.