March 10, 2009

State of Minnesota offers Islamic mortgages


Since Sharia Law forbids Muslims to obtain interest bearing loans, Minnesota Public Radio reports that the state of Minnesota is now offering mortgages tailored specifically for Muslims.

According to the MPR piece, the arrangement between qualifying Muslims and the state of Minnesota works like this:

"The state buys a home and resells it to the buyer at a higher price. The down payment and monthly installments are agreed to up front at current mortgage rates. The deal is identical to a thirty-year fixed-rate loan, except there's no additional interest, because the higher up front price factors in payments that would have been made over the life of a traditional mortgage. A handful of private banks and lending institutions offer Islamic mortgages in the U.S., but Minnesota Housing is the first state agency to offer such a product."

Evidently, the loans actually do include interest, but it is just not called "interest" and it is loaded on the front end instead of throughout the life of the mortgage. This arrangement raises some significant questions. Not the least of which is that paying an inflated price for a house -"interest free" mortgage or not- does not seem wise for the buyer or the market. Furthermore, one has to wonder how rearranging the interest actually gets the Muslim buyer around the Sharia Law prohibition against paying interest.

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