Q: Many conventional banks have products called ‘Offset’ Mortgages. These are mortgages whereby:
If i have a mortgage of 50K and savings of 50K the savings offsets the interest on the remaining mortgage value. So in the above case 50K mortgage, 50K savings means zero interest.
Hence, is it permitted to take a conventional mortgage whereby there is no interest (due to the interest offset against savings?)
If the savings are touched, e.g. if 10K out of 50K is taken out, and there is a mortgage of 50K, the interest will be applied on the 10K. However, if i am sure i will have the money for the duration of the mortgage in the account – is this permitted as paying or dealing with riba is avoided. (Similar to a credit card whereby if i don’t pay my balance end of the month i incur interest)
The scenario is that i am in the process of buying a flat for 30K with the local authority. I have this much saving as well, thus rather than use my saving I can pay no interest and simply pay the capital repayment with no riba.
الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب
A: Just as it is a sin to physically pay interest it is also a sin to agree to pay interest in the case a pre-agreed event (savings fall below mortgage amount) occurs. Thus, it is not permissible to take an offset mortgage wherein the borrower agrees to pay interest in the event his savings fall below his mortgage.