Using an offset mortgage with equal savings to the loan value
The question, as received
Could I take out an offset mortgage whereby i would avoid paying any interest on the loan if i’m certain that my savings will always be equal to or above the loan value. e,g. if the loan value is £100k, and my savings is also £100k or above, then I would avoid having to pay any interest payments and would just be paying back the loan amount each month.
[Question published as received.]
The answer
An offset mortgage where the savings balance fully offsets the mortgage balance is often referred to as a ‘100% offset mortgage’. Theoretically, this could imply that the homeowner would pay no interest on their mortgage and neither any interest on their savings because the mortgage interest charged would be equal to the interest earned on the savings.
Explanation
However, in reality, there are slight anomalies due to the way credit and debit interest are calculated. Credit interest on savings accounts is typically calculated based on the actual number of days in the calendar month, while debit interest on mortgages is calculated by dividing the year into 12 equal parts, so each “month” is assumed to have 30.4 days.i
Therefore, even with a 100% offset mortgage, there will always be a small amount of interest charged or earned due to these differences in calculation methods. In essence, it’s near impossible to achieve a truly interest-free arrangement with this type of mortgage.
Even if by some rare chance, a 100% offset mortgage were to be structured in a way that completely avoided interest charges or earnings, the transaction would still be considered impermissible.
In an offset mortgage, the balance in one’s savings or current account is offset against the mortgage balance to reduce or eradicate the amount of interest charged on the mortgage. However, this is achieved by the lender reducing or trading the interest charged on the mortgage by the interest earned on the balance in a savings or current account. Therefore, this is still seen as charging interest, which is of course prohibited.
When a customer is required to deposit money into a savings account to neutralise or nullify mortgage interest rates, he or she is in essence offsetting their interest payments with a loan to the bank in the form of a deposited amount. Therefore, the transaction in question is still considered to be usurious (ribawī). In principle, any contract wherein there is a requirement to lend, to receive additional benefit(s) is a form of Ribā.
A famous juristic maxim to be understood: “Any loan which draws an increment is Ribā”. (Ibn Abī Shaybah). ‘Allamah Marghināni (d.593 AH), and other jurists describe Ribā as the unjustified excess which one of the transacting parties assume entitlement to, either contractually, virtue of custom , or by pre-agreement.
The warnings against Ribā are severe, the Qur’an and the Sunnah state:
“O you who believe! Remain conscious of Allah, and give up all outstanding gains from usury, if you are [truly] believers; for if you do it not, then know that you are at war with Allah and His Messenger. But if you repent, then you shall be entitled to [the return of] your principal. You will do no wrong, and neither will you be wronged.” [Surat Al-Baqarah, 278-279]
The Prophet Muhammad (salallahu alayhi wasallam) said regarding Ribā:
“Cursed is the one who takes interest, and the one who pays it, the one who records it, and the two who (accept to be the) witnesses for signing it.” [Muslim]
And Allah knows best.
Maulana Ammar Y Badat
Reviewed and approved by Mufti Faraz Adam
References
واما الرِّبَا فِي الدّين فَهُوَ على وَجْهَيْن احدها ان يَبِيع رجلا مَتَاعا بِالنَّسِيئَةِ فَلَمَّا حل الاجل طَالبه رب الدّين فَقَالَ الْمَدْيُون زِدْنِي فِي الاجل ازدك فِي الدَّرَاهِم فَفعل فان ذَلِك رَبًّاوَالثَّانِي ان يَقُول رب الدّين للمديون قبل مَحل الاجل اعطني مَالِي فاحط عَنْك بَعْضًا من ديني فَفعل فان ذَلِك رَبًّا للمديون وَلَا يحل لَهُ ذَلِك (النتف في الفتاوى)
لأن الربا هو الفضل المستحق لأحد المتعاقدين في المعاوضة الخالي عن عوض شرط فيه، ولا يعتبر الوصف لأنه لا يعد تفاوتا عرفا، أو لأن في اعتباره سد باب البياعات (الهداية في شرح بداية المبتدي)
قال مُحَمَّدٌ رَحِمَهُ اللَّهُ تَعَالَى في كِتَابِ الصَّرْفِ إنَّ أَبَا حَنِيفَةَ رَحِمَهُ اللَّهُ تَعَالَى كان يَكْرَهُ كُلُّ قَرْضٍ جَرَّ مَنْفَعَةٍ قال الْكَرْخِيُّ هذا إذَا كانت الْمَنْفَعَةُ مَشْرُوطَةً في الْعَقْدِ بِأَنْ أَقْرَضَ غَلَّةً لِيَرُدَّ عليه صِحَاحًا أو ما أَشْبَهَ ذلك فَإِنْ لم تَكُنْ الْمَنْفَعَةُ مَشْرُوطَةً في الْعَقْدِ فَأَعْطَاهُ الْمُسْتَقْرِضُ أَجْوَدَ مِمَّا عليه فَلَا بَأْسَ بِهِ وَكَذَلِكَ إذَا أَقْرَضَ رَجُلًا دَرَاهِمَ أو دَنَانِيرَلِيَشْتَرِيَ الْمُسْتَقْرِضُ من الْمُقْرِضِ مَتَاعًا بِثَمَنٍ غَالٍ فَهُوَ مَكْرُوهٌ وَإِنْ لم يَكُنْ شِرَاءُ الْمَتَاعِ مَشْرُوطًا في الْقَرْضِ وَلَكِنَّ الْمُسْتَقْرِضَ اشْتَرَى من الْمُقْرِضِ بَعْدَ الْقَرْضِ بِثَمَنٍ غَالٍ فَعَلَى قَوْلِ الْكَرْخِيِّ لَا بَأْسَ بِهِ وَذَكَرَ الْخَصَّافُ في كِتَابِهِ وقال ما أُحِبُّ له ذلك وَذَكَرَ شَمْسُ الْأَئِمَّةِ الْحَلْوَانِيُّ أَنَّهُ حَرَامٌ وَذَكَرَ مُحَمَّدٌ رَحِمَهُ اللَّهُ تَعَالَى في كِتَابِ الصَّرْفِ أَنَّ السَّلَفَ كَانُوا يَكْرَهُونَ ذلك (فتاوى الهندية)
مطلب كل قرض جر نفعا حرام قوله ( كل قرض جر نفعا حرام ) أي إذا كان مشروطا كما علم مما نقله عن البحر(حاشية رد المختار على الدر المختار)
ihttps://www.barclays.co.uk/help/mortgages/managing-mortgage/savings-offset-interest/#:~:text=our%20help%20centre-,If%20I%20have%20exactly%20the%20same%20in%20savings%20as%20I,no%20interest%20on%20your%20savings.
Based on the Hanafi school and on the question as it was asked. Another mufti may reach a different conclusion. Read the disclaimer.