Quote:Very good point, but let me add a couple of other thoughts regarding this.


1. How does a financial institution determine creditworthiness when considering someone for a loan? In the case of a mortgage, income, debt and credit history is scrutinized. How does someone build a credit history if they don't pay interest?


2. Assume hypothetically that the current interest rate for a home loan is 8% for someone with "good" credit. Say after 5 years the current interest rate drops to 4%. A traditional borrower could refinance at the lower rate. How would a "sharia complaint" refinancing be calculated?

My thoughts while waiting for a flight in Dallas (i.e., brief and disorganized):


1. I would anticipate that their credit be checked before extending the loan offer, and their interest rate figured accordingly. If they have no credit, I would hope (though I know there will be those who push to not make this the case) that the lender would have the right to turn the applicant away. Try and apply for a conventional loan with no credit and see how far you get in the process. Hint: they won't even take your application fee.


As to how the applicants build credit history, that's no one's problem but their own to figure out.


2. There should not be an opportunity to refinance a Sharia loan. You can play with interest all you want, but buying down and refunding principal like that leaves things way too open to fraud. I'm sure someone will complain and banks will be forced to figure out how to do it, but imo, you can only expect someone to go so far to cater to the desires of another person. My sister is a vegan, but if we're going out for dinner and I want a damn burger, we're going somewhere that I can get a damn burger and she can have a salad. She's the one with the special preferences, not me, and there's only so far that I should reasonably be expected to go to accommodate her. The same principle applies here. Want Sharia loans? Fine. Want to rewrite the rules of banking to make those loans favor one group of buyers over another? No. Go away.

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