Topics: Islamic Finance

Understanding Mortgages: The Difference Between Loans and Rentals in Islamic Finance

Exploring the Implications of Mortgaged Property in Islamic Finance

Question: When we inform someone that it is impermissible to benefit from mortgaged property, they respond by asking, “What benefit does the mortgagee get then?”

Another scenario: If land is mortgaged in exchange for a loan for a set period, during which the mortgagee benefits from the land, and after the period, the land is returned without repayment, is this permissible?

Answer: The person asking what benefit the mortgagee gets needs to understand the true meaning of a loan. A loan is a favor to help someone without expecting any benefit. Benefiting from mortgaged property is considered interest (riba) and is forbidden.

Regarding the second question, if land is mortgaged for a specific period in exchange for a loan, after which the loan is not repaid, this can be structured as a rental agreement. For example, someone can lease the land for five years, and the rent can be paid upfront in one lump sum. There is no issue with this arrangement. In such a case, the person leasing the land can use it however they wish during the agreed-upon period, such as farming or conducting business. This is permissible because it is a rental agreement, not a loan transaction.

Respondent: Sheikh Maqbool Ahmed Salafi Hafizahullah 

Jeddah Dawah Center, Saudi Arabia  

Interpreter: Hasan Fuzail

Author: IslamicHelper

IslamicHelper

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