Question Summary:
Zaid is living in Albany. State of New York in U.S.A. He has taken a loan of 187,000 USD from Bank of America and taken a house on mortgage.

Question Detail:

Zaid is living in Albany. State of New York in U.S.A. He has taken a loan of 187,000 USD from Bank of America and taken a house on mortgage. The value of the house is 227.000 USD. the balance 227,000— 1 87,000 40,000 USD was paid cash by him to the bank after selling jewellery of his wife and joining all the extra money he had. He has to repay the bank in 30 years, it is fix loan in monthly instalments od about 1.000 USD. The house is also not a very luxury one but is according to his necessity. Please guide whether his action ts permissible or not, The local ulama advised him to take a loan from Tslan’.ic orgarnialioni institution hut their rates are very high.

Answer :

In the name of Allah, Most Gracious, Most Merciful
Assalaamu `alaykum waRahmatullahi Wabarakatoh
At the outset it is necessary to know that Shari’a has expressly stated interest to be unlawful. To be involved in an interest transaction of any kind is strictly prohibited. Consider the following narration:
عن جابر قال لعن رسول الله صلى الله عليه وسلم آكل الربا وموكله وكاتبه وشاهديه وقال هم سواء
Jābir (Radhiyallāhu ‘Anhu) narrates that Rasulullāh (Sallalāhu ‘Alayhi Wasallam) cursed the one devours interest, the one who facilitates it, the one who witnesses it and the one who records it.  He said they are all equal. (Sahīh Muslim)
It is compulsory upon a person to abstain from all forms of interest. A Muslim must have an aversion to interest money and refrain from it to the best of his ability. To receive interest or to pay interest, both are guilty of the sin. To deliberately involve one’s self in an interest transaction is a major sin for which a person has to repent sincerely to Almighty Allah.
Zaid has involved himself in an interest transaction with the Bank of America. It is incumbent upon him to terminate this contract as soon as possible. If the contract is binding, then he must pay the bank the remainder amount due in order to avoid paying any additional interest. You have stated that there exist Islamic organizations that offer long terms loan. If these Islamic organizations are Shari’a compliant, then Zaid should adopt this avenue and take a long-term from the Islamic organization to pay off the bank’s loan.
We are aware that the Islamic loans available in today’s time have very high rates and at times they appears to be a worse then the bank’s loan. However, this is due to external reason such as the scarceness of Islamic financing, lack of funds, not having enough support, etc. In any case, an Islamic loan with hire rates will definitely be preferred over an interest-bearing loan with lower rates. The latter is such that it brings the wrath of Allāh and his Prophet (Sallallāhu ‘Alayhi Wassalam) in which a person’s hereafter is at stake. Inshallāh, if a person choose the Islamic loan and bears the difficulty of the higher rates in order to abstain from paying interest, he will be immensely reward for such an action. Verily the actions are judged upon intentions. May Allāh make it easy for you to abstain from all forms of interest, Āmīn.
And Allah knows best
Wassalam
Ml. Ehzaz Ajmeri,
Student Darul Iftaa
Checked and Approved by:
Mufti Ebrahim Desai
Darul Iftaa, Madrassah In'aamiyyah