Banking: Ruling on Bank Housing Loans with Percentage Surcharge

Practical Laws of Islam as per the teachings of Imam Khamenei

Banking: Ruling on Bank Housing Loans with Percentage Surcharge

English:

Question #1901:

Under the title of partnership or any other deal, the banks grant loans to interested customers for building houses. The banks charge between 5% and 8% increase [interest] on the amount of loan. What is the ruling on this type of loans, especially with this surcharge?

Answer #1901:

Taking the money from the bank under the title of partnership or any other proper and shar‘ī transaction cannot be deemed a loan or borrowing. Nor should the profits made by the bank of these shar‘ī transactions be considered ribā that is forbidden. There is no objection to taking the money under any of those titles to buy or build property. Nor is there any objection to having the right of possession over the property. However, even if it is deemed a loan with a surcharge, the borrowing contract per se is valid and the borrower can use the money, although the usurious borrowing ḥarām.

-Imam Khamenei, Practical Laws of Islam, Importance and Conditions of Banking