Permissibility Of Offset MortgagePosted by Fahad Nawaz on May 12, 2022 at 9:23 pm
I have listened to Ustaaz Javaid Ahmad Ghamidi Sb 23 Eteraz Series on “Sood”.
Is there anywhere Javaid sb explained whether “Offset Mortgage” is also allowed or does Offset inside Mortgage impurify the deal with sood (as per Quranic definition)?
Just want to clarify.
May 13, 2022 at 6:02 pm
Ghamidi Sahab has not discussed this specific issue anywhere to the best of my knowledge.
May 14, 2022 at 3:59 am
Any opinions available from other scholars of Farahi school of thought?
May 14, 2022 at 10:01 am
I’m not really aware of the details of offset mortgages, however, glancing at the information available on the Internet it appears that an offset mortgage requires one to have an interest bearing savings account with the lender. If that’s correct then Ghamidi sahab’s opinion about savings account interest is that it’s not permissible. The reason for this is that banks earn most of their money through riba.
May 14, 2022 at 3:28 pm
Yes you are correct. In Offset Mortgage account “we allow bank to give us Sood on our cash savings sitting in bank and then offset that earning from our regular Mortgage payments” so bank doesn’t pay us earned sood directly but deduct that from our monthly mortgage payments. The situation becomes interesting as “you can take your cash savings out anytime which means you earned regular sood on that money while it was sitting in the bank and saved on regular mortgage payments”.
I was heading in the opinion you shared from Javaid sb because I vaguely remember Javaid Sb touching on a similar point in 23 Aiteraz Series. I will go through the sood section again in 23 Aiteraz series and if I find Javaid sb touching on a similar point then I share.
JazakAllah for helping out!
May 15, 2022 at 11:21 pm
In my understanding the linked savings account(s) become non-interest bearing during the tenure of mortgage i.e. no income can be earned on the amount present in the linked Savings Account. This factor needs to be considered as well. Therefore, if this is the arrangment and the savings account(s) only include original deposits (without any interest amlagamated with that amount), in such a situation, objection can be removed.
May 18, 2022 at 6:54 am
Sorry I didn’t see this reply from you. For some reason, app didn’t give me a notification. It is not that simple as you interpreted.
In offset mortgage, basically they are building interest on your savings but offset that interest from your Mortgage payment (you are right they don’t give it to you that’s why it is called offset).
If I have 350K loan and I have 50K savings and I have an offset mortgage at 2% rate from Jan – May 2022. To keep it simple, let’s say it is set to “interest rate only i.e., I am not paying principal).
From Jan – May, bank will charge me mortgage rate for 300K only. ie., I will be paying 300K x 2% / 365 x no of days per month (31) = 509 dollars instead of 350K x 2% / 365 x no of days (31) = 594 dollars so I am offsetting interest of (85 dollars) on my savings while my savings are in account.
Now I decide to take 30K savings out of my offset account in June 2022 means I have 20K savings in account. Now offset mortgage account balance will become 350K – 20K – what I paid between Jan – May (let’s say this is 5K). So let’s say leftover now is 350K – 20K – 5K = 325 K.
From June onwards, your mortgage payment is 325K x 2%/ 365 x No of days per month (31) = 552 dollars rather than 586 dollars. Again I am offsetting interest of (34 dollars) on my savings while my savings are in account.
Point to note: As I am taking my savings out of my offset account, mortgage payment is going up coz I am not offsetting interest on my savings with mortgage amount.
To me, it feels like this is interest on my cash which I feel is “sood defined in Quran as explained by our Ustaaz Javaid Sb”. That is why I was interested in cross checking on this app from people of knowledge.
Try to build a simulation in an excel sheet on above example and you will see what I mean.
Let me know your opinion once you have done up a calculation on an offset mortgage in an excel sheet or on a piece of paper.
I hope I have explained clearly but let’s discuss further if I am not clear as it is important for me that I get this right.
Also, I could not find an answer on this issue by Ustaaz Sb in 23 Aiteraz series on Sood but I remember he touched on similar topic somewhere as it is resonating in my mind still. So annoying, I can’t find it.
May 19, 2022 at 7:28 pm
The only concern that can be raised in this arrangement from Islamic Perspective is whether or not the Interest bearing Savings Account linked with the mortgage is earning any interest on this account or not.
It is my understanding that such savings account(s) becomes non-interest bearing for the tenure of the mortgage, hence no interest is being earned in that account against the savings made. The financial institution benefits from such savings through investments in other domains and in return, allows the mortgagor to offset that amount against the mortgage liability. But if there is any element of interest present in that savings account, resulting in earning of interest income, either before or during the tenure of the mortgage, then as pointed out by Faisal Sahab above, would not be acceptable in the light of understanding of the matter as per Ghamidi Sahab.
It is presence of interest income in the savings account(s) which is objectionable, not the mere knocking off of savings account balance against mortgage liability to determine the subsequent payment.
May 19, 2022 at 8:54 pm
I see your point but it is kind of a grey area regarding where bank is investing and whether what they are offsetting in my mortgage is pure transaction or pure Riba.
All I can see is, I am earning on my cash savings which is deducted from my mortgage payments regularly therefore playing it safe, I would rather avoid it.
June 1, 2022 at 8:20 am
The objection on Banks’ Savings Account is because of sharing income of the bank which is primarily earned through Riba – So if there is no such participation in Banks’ earning that way, a person is not earning Riba. Offsetting of account has nothing to do with the real objection on having Savings Account to begin with.
Please also refer to the following response by Ghamidi Sahab:
June 1, 2022 at 4:06 pm
JazakAllah brother for finding and sharing. This was the clip I was mentioning previously.
I was actually trying to find it in Aiteraz series whereas it is in mezaan lectures.
After listening to this answer again, I don’t feel comfortable with offset saving account use as I am hearing a note of caution from “Javaid Sb” as well on any savings account therefore I will still avoid using offset savings. Like Javaid Sb said, one can argue and I will take the argumentative side of caution.