A mortgage is an important financing tool that provides individuals with financial liquidity to help them achieve goals such as owning their dream home or purchasing land to develop a project. This method is used by many financial institutions, including some Islamic finance organizations. But what exactly is a mortgage, and what are its conditions according to Islamic Sharia standards? Let’s explore these questions below:

Definition of a Mortgage

A mortgage is a financial agreement that allows an individual to obtain a loan secured by a property they own. The property remains mortgaged with the financing institution until the full agreed amount is repaid. If the borrower is unable to make repayments after receiving warnings, the financing institution may sell the property to settle the debt. Once all payments are made, the property returns to the borrower’s full ownership.

What is the Difference Between a Mortgage and Property Financing?

Some people confuse a mortgage with property financing, although there are clear distinctions between the two. A mortgage is a type of property financing where the loan is secured by the property itself. In property financing, the loan is obtained to purchase or construct a specific property, and other forms of collateral may be used instead of the property itself.

With a mortgage, the client secures liquidity by pledging the property until the full repayment is made. Property financing, on the other hand, focuses on providing the client with the necessary funds to purchase or build the property. These differences make each type of financing suitable for different client needs. Some individuals require property as collateral to secure financing, while others may have alternative guarantees that eliminate the need for mortgaging property.

Differences Between Mortgages in Conventional Banks and Islamic Institutions 

In conventional banks, interest is an integral part of the process. However, Islamic institutions prohibit interest-based profits. Additionally, ownership practices differ; a conventional bank may sell the property in the event of default, whereas Islamic institutions conduct sales for the benefit of the borrower. Mortgages in Islamic institutions aim to secure loan repayment and are considered a prerequisite for completing the contract.

Conclusion 

A mortgage is an effective way to secure the financial liquidity needed by using property as collateral. However, understanding its conditions and the differences between conventional banks and Islamic institutions is crucial. Amlak International provides Sharia-compliant solutions that ensure clients have flexibility and transparency when accessing property loans and related services.