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Replacing an Interest Mortgage

Using the techniques of Ijara, it is possible to replace an existing interest mortgage with a Manzil Home Purchase Plan.

To change your existing financial arrangement or to replace an existing conventional mortgage or Islamic home finance product, the process will be as follows:-

We will agree to purchase the title to your property from you or your existing home finance provider, either at the level of your current outstanding debt on your property or at the value you wish to refinance, neither of which shall be at a level greater than 83% of the current market value.

You will agree to purchase the property from us at this price at the end of the agreed term or at an earlier time that will be dictated by you.

Example

Property Purchase Price/value £100,000.
Existing interest mortgage with bank or building society for £60,000.

• Bank values the property (say £100,000).
• Bank buys property for £100,000.
• You receive £100,000.
• £60,000 is paid to your existing lender to repay the current mortgage.
• £40,000 is paid back to the bank as the first purchase instalment towards your purchase of the property back from the bank.
• The ‘net’ position is therefore that you now have finance of £60,000 with AUBUK, which will be paid by monthly instalments in the normal way.

Our Shari’ah advice is that it is permissible to operate Manzil Ijara Home Purchase Plans in this way to help clients move away from an interest mortgage.