Posted by: islamicfinancingnews | June 29, 2012

Building home equity with Islamic mortgages

Practicing Muslims are concerned with abiding by all aspects of Sharia law and building equity in a home while avoiding Riba is an important part of what Islamic mortgages can offer.

Equity as it relates to home ownership and property is often described as the appraised value of the home minus the amount of a loan or mortgage equals the amount of equity. Equity is considered an asset and when you build equity, you are increasing the value of the asset. For example, paying off your mortgage increases the equity in your home. Every time you make a mortgage payment, you reduce the balance owing and your equity increases that much more.

You can also build equity by increasing the value of your home. This can happen naturally through favorable market conditions particularly for homes located in good areas close to amenities, or by making definite improvements to your home such as remodeling the kitchen, bathroom or framing and finishing the basement. Keep in mind borrowing against the existing equity in your home to make these upgrades will impede the equity building process.

Home ownership offers many benefits and one advantage is the capacity to build equity. You should consult with your lender about the various Islamic finance options available to help build additional equity in your home.

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