Posted by: islamicfinancingnews | August 28, 2013

Understanding some basics common to conventional and Islamic mortgages

islam-31 Some first time buyers who are looking to obtain Islamic finance to help purchase their first home think the home buying experience begins and ends with finding the perfect property. In fact, there is preparation involved whenever you need to obtain a mortgage and the same applies to more seasoned home buyers looking for their next home.

It’s a good idea for any borrower looking for a mortgage to have an understanding of the basics beginning with the fact that mortgage payments are made up of the amount borrowed or the principal in a Lease to Own Islamic finance arrangement. In the case of conventional mortgages, the mortgage payment also includes the cost to borrow the funds or interest. Some common mortgage options available to borrowers include:

  • Making a larger payment-on-account or down payment in the 10 to 20 percent range will allow for a smaller mortgage.
  • A shorter amortization period which is the amount of time over which the entire debt is repaid (approximately 25 years) will shorten the period of the loan.
  • Choosing weekly or bi-weekly mortgage payments rather than monthly payments can accelerate how soon you can repay the mortgage, while extra payments can save money on interest costs for traditional mortgages.
  • Making additional lump sum payments on your mortgage can help to reduce the principal amount owing and interest payments where applicable.

Having a general knowledge of the mortgage process will help you choose the right Islamic mortgages that suit your needs and budget.

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