Seems like banks are hardselling Islamic Housing Loan these days.

What they tell me is:

Pros:

1. No lock in period
2. Capped interest rate at around 10%, in the event of hyperinflation environment purchaser is protected

Cons:
Nil

But what's the actual downside? There has to be some downside or catch, otherwise everyone would be taking Islamic loans if its just upside compared to conventional loan

This post has been edited by contestchris: Sep 17 2023, 10:08 PM

1) Islamic financing has more documentation needed than conventional home loan (can be 3 or 4 documents, vs home loan usually only have 2 which is Facility Agreement and Charge), which increases legal costs and stamp duty costs. But government has some subsidy to cover this, if I remember correctly.

2) Negative perception of Islamic products, because some people have discrimination towards Islam.

3) The terms and clauses of Islamic financing are very opaque to those who aren't educated in Islamic financing terms, which can cause confusion to customer and their attending lawyer(s).

4) In conventional loan, if you alter terms of financing (example, increase facility amount to redraw from existing loan), you only need to make a supplemental agreement. For Islamic financing, a new set of Sale & Buy-back Agreement needs to be made, which ups legal costs.

5) Trying to refinance Islamic financing is less straightforward and not as easy to convert vs conventional loan.

6) If your occupation and source of income is not "halal" (i.e. you're in pork selling business, or alcohol-selling, or own nightclub/casino), you cannot qualify for islamic financing.

This post has been edited by DragonReine: Sep 17 2023, 08:38 PM

i want to know also

i have one islamic loan. i notice the deduction of interest is much faster than normal one, not sure is because if the short tenure 25 years compare with other loans of 30 years....

Example of con (not mathematically accurate),
Conventional - First day Loan 100k balance is 100k
Islamic - First day Loan 100k balance 200k already.

this is not a con... just how they show it

if you just follow schedule... no difference

As far as i know, the banks have adjusted Islamic loans to be similar to conventional loans. The Banks have been given a quota by Bank Negara to give islamic loans therefore they need to push the islamic loans.

In the past there was a big disadvantage in that in the event of default for islamic loans the bank can sue you for the whole tenure instalment including interest. However i believe this has been rectified. There was one advantage in the past, islamic loans tend to be fixed rate so even if the BR rises, your interest won't rise. This has also been "rectified".

I am no expert but in making Islamic loans so much like conventional loans, there is really no difference except in the name. This is due to lobbying by the banks who don't want to lose out by giving islamic loans. I believe that islamic loans should be fixed interest and if you sell at a loss, the bank also takes a loss on your loan. (please correct me if i am wrong). So if banks give out "real" islamic loans, everyone will go for it.

Not accurate to nett balance 😂 you need to read terms properly.

Islamic finance will show the full balance based on the max profit rate 1st, then will recalculate with "rebate" to reduce the amount need to pay to bank.

Rates between conventional loan and Islamic financing is almost same.

This post has been edited by DragonReine: Sep 18 2023, 04:07 PM

Yup if follow schedule about the same. Problem if early settlement.

We assume about the same. But there is no written calculation of rebate. It is the bank discretion.

I am taking HL Islamic Housing Loan.
The profit rate is very high 4.89%. My loan amount is 170k with tenure 30yrs.

I am thinking to refinance as the profit rate is damn too high ..

That's the main problem of Islamic: opacity of terms, because under Islamic thinking it should not be a "profit making", so any reduction from the "high" profit rate is given as a hibah.

Further reading: https://www.bnm.gov.my/documents/20124/9380...=1592245213682v

Thanks. So BNM instructions to not disclose the rebate calculation. Might be shariah compliance practices. Hibah in general is gift by bank to you, so amount is dependable to bank. So better to stick to schedule payments. Or have a comform figure of rebate first before making decisions to fully settle the loan.

Do run your numbers through a refinancing calculator first: https://www.propertyguru.com.my/mortgage/ho...ance-calculator

Depending on the new interest and how much longer on the current loan you have left, the new amount of interest and additional legal charges might mean you'll pay more overall than if you just continue to service the current loan.

Unless you are restricted in cash-flow by the monthly installment, then maybe can try to see if you can get lower installment with refinancing.

although the outstanding balance shown in the statement is inclusive of the unexpired profit, the interest is calculated based on the outstanding principal only

on the contrary, islamic loan has a ceiling rate, which is the maximum interest that could be charged
so the hibah is the difference between the ceiling rate and the rate offerred (BFR/BR + -) instead of the bank's discretion

What do you mean by the difference? Can you elaborate a bit?

Each loan is subject to tnc. If the tnc are similar, then they would behave the same way.

Money is fungible. And can be mixed.

Btw, food for thoughts. Would you think cimb Islamic reject a pork seller just because the 100 ringgit notes came from selling pork?

I am using Islamic loan.

The difference is just how they present the calculation

Example you loan rm500k. They tell you you owe them rm1.5mil.

Fuarrkkk

I think the pro sometimes cheaper due to promo

This post has been edited by vapanel: Sep 19 2023, 04:04 PM

the section REBATES ON THE CEILING RATE explain in detail

to simplify, assuming finance amount RM 1,000, ceiling rate 10% p.a., effective profit rate 5%, 1 instalment, interest is charged annually
sale price = RM 1,100 (loan statement opening outstanding amount)
repayment = RM 1,050 (based on effective profit rate)
balance = RM 50 (rebate)

source

Thank you. Good info.

May I know how they calculate the profit rate if we pay extra to reduce principal? Does is same like conventional semi flexible mortgage?

is it islamic loan for undercon, dev go liquidated no need serve interest?

sorry, i have no idea also.
last time was convince to take islamic because of the lower stamp duty.

I also wonder what is the difference. Recently I have been offered with Commodity Murabahah Home Financing-i. One of the difference is , if not mistaken, the interest at the beginning of the loan is same across the whole tenure(flat rate) . While conventional loan has high interest at the beginning of loan(reducing rate) . Based on what I have read in lowyat, some people say at the end of the day, islamic loan will need to pay more than conventional.
Im not very sure of islamic loan and hesitant to take it but banker keep saying islamic loan is better as it has ceiling interest.
Hope someone can offer some insights on this.

This post has been edited by AgoNi: Oct 12 2024, 10:05 AM

I heard only so certainly do not correct or not correct

In a conventional loan of 100K, bank charge you interest and you work from there.

In a Islamic loan, bank can not charge interest but they can make profit. So what happen is, the bank will buy the house for 100K and sell it to you, say, 150K. So the bank make a profit of 50K. So over the course of 20 years, you pay the bank 150K. Now the question is, after just 1 months, you want to settle off the loan, how much do you owe the bank? 100K + interest or 150K?

By contract you owe them 150k. But bank allowed to give you rebate, this one have to engage with bank to know how much. Ideal world you will be paying 100k plus a year profit I would assume.