Q&A: Exploring an interest-free property option
How Islamic home loans work and how non-Muslims qualify
Q: My wife and I are in the market to buy a house, but we’re very much against dealing in interest. We have our eye on a home that’s on sale for R1.2m. We read about Islamic home loans that are not linked to interest rates. Do we as non-Muslims qualify? And if we do [qualify], how much will our bond be over a 20-year term? Can you please give us a breakdown? — James K
Amman Muhammad, CEO of Islamic banking at FNB, responds:
FNB Islamic Banking’s full range of products and services are offered to both individuals and business entities and are available to all members of society, including non-Muslims.
The FNB Islamic residential property finance product is based on the principle of diminishing Musharaka, which is a form of co-ownership. At the onset of the financing agreement, the bank and you, the customer, enter into a co-ownership agreement linked to the property being purchased.
You then periodically buy the bank’s share in tranches, at an agreed profit rate, thus increasing your share. This will continue until you have completely bought the bank’s share, making you the sole owner of the property.
To qualify for FNB Islamic residential property finance, you must individually or jointly, meet the credit criteria set out by FNB. FNB Islamic Banking applies a principle of risk-based pricing. Accordingly, pricing is primarily dependent upon the movement in the Islamic banking base rate (IBBR), your credit score, the property’s valuation and your banking relationship with FNB.
The overall financing amount over a 20-year period will be determined using the loan amount and the agreed upon profit rate.
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