Islamic and Conventional Mortgages
In the UAE, mortgages typically range from four to 25 years, and property investors have the option to select either Islamic or conventional mortgages. Islamic financing, overseen by Islamic banks in the UAE, has emerged as a strong competitor to traditional mortgage financing. Capital Zone can help you with both Islamic and Conventional mortgages
Conventional Mortgages:
Conventional mortgages follow established lending practices common in the financial industry.
Notable features include:
– Interest-Based: Conventional mortgages require the borrower to pay interest on the loan amount. This interest is repaid over the duration of the loan.
– Ownership Transfer: In these mortgages, the lender provides the necessary funds for the borrower to buy the property. The borrower then becomes the property owner, while the lender maintains a lien on the property as security until the loan is completely repaid.
– Collateral: The purchased or refinanced property acts as collateral for the mortgage. If the borrower fails to make payments, the lender has the right to foreclose on the property to recover their investment.
Islamic Mortgages:
Islamic mortgages follow Islamic finance principles that prohibit charging or paying interest (riba). Instead, they adhere to Sharia law guidelines.
Key features include:
– Interest-Free: Islamic mortgages avoid interest charges by using partnership or co-ownership models (Murabaha/Ijarah) instead of accruing interest.
– Co-Ownership: In an Islamic mortgage, the lender and borrower jointly acquire the property. The lender contributes a portion of the property’s value, while the borrower makes regular payments to gradually buy out the lender’s share.
– Profit-Sharing: As payments are made, the borrower’s stake in the property increases while the lender’s share decreases. The lender may receive rental payments for their portion of the property that the borrower occupies, serving as compensation for their investment.
– Collateral: The property acts as collateral, similar to conventional mortgages, meaning the lender retains a claim on the property if the borrower defaults.
Islamic mortgages align with Islamic principles, providing home financing solutions for individuals who want to adhere to their faith.
Islamic banks in the UAE offer two main types of housing loans:
Murabaha Financing:
A widely used method for Islamic home financing is Murabaha.
In this structure, the bank buys the property for the customer and then sells it to them at a pre-determined profit margin. The customer then repays this amount over a set period.
Ijarah Financing (Lease to Own):
In an Ijarah-based mortgage, the bank acquires the property and then leases it to the customer. The customer makes regular lease payments, with part of each payment contributing towards the property’s purchase price.
Gradually, the customer accumulates ownership of the property.
Banks that Offer Islamic Mortgages exclusively
- Dubai Islamic Bank
- Abu Dhabi Islamic Bank
- Sharjah Islamic Bank
- Emirates Islamic Bank
Islamic mortgages provide a Sharia-compliant and ethical way to finance a home in the UAE. They offer different structures and benefits, such as shared risk and asset ownership, making them a practical alternative to conventional mortgages for Muslims who want to buy a home while staying true to their faith.
It’s also important to thoroughly research, seek expert advice, and select a mortgage structure that fits your financial objectives and values.
If you’re seeking a mortgage in the UAE, Capital Zone Mortgage offers complimentary assistance from our mortgage specialists for both Islamic and Conventional Mortgages. Our services feature an online mortgage application that quickly scans the market for the best Islamic and conventional mortgage options within two minutes. You can also utilize our Mortgage Calculator to determine your monthly payments and assess your affordability.
Start exploring your mortgage options now and get in touch with our experts for personalized advice!
How Capital Zone can help
We are the best mortgage brokers in the UAE, offering comprehensive solutions for all your mortgage needs. With years of experience and expertise in the industry, we are equipped to help you navigate the complex process of securing a mortgage. Whether you’re looking to buy your first home, invest in real estate, or refinance your existing mortgage, our team of professionals is here to assist you every step of the way.
