Powerline Blog has a post about Muslim Mortgages. According to Islam it’s forbidden to charge or pay interest which makes it very difficult to buy a house since few people have enough money to pay for a house in full with cash.
Minnesota has come up with a plan: they buy the house and then sell it for an increased amount “interest free.”
The increased amount is equal to the interest that would be charged through a traditional loan. So basically Muslims are being given a simple interest loan when they buy a house but it’s not called interest. It’s just a higher price for the house.
So let’s say you want a $160,000 property. The bank wants 7% interest. They run the numbers and after 30 years you would pay $230,000 in interest for the loan. You add in the original $160,000 and you’ll pay $390,000 over 30 years which works out to about $1083 a month.
With a traditional loan you can save yourself tens of thousands of dollars in interest simply by paying extra on the mortgage every month. With this “interest free” loan you’re stuck paying $390,000 for a $160,000 house. Paying extra will only cut down the time it takes to pay it off, not the overall cost.
If you could get a real interest free loan that would be awesome but this is just silly.
