Question:

Are Deposits Held in an Offset Mortgage Account subject to Zakat?

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

The Answer:

Mortgages are interest based lending transactions.  Interest based transactions have been categorically forbidden.  To engage in such transactions without necessity and exemptive circumstances is not permissible. One who has engaged in such transactions should endeavour to switch to an Islamic home purchase plan if available as soon as possible. Meanwhile, one must repent for engaging in such a contract.

As opposed to a repayment mortgage, an offset mortgage is linked to one – or sometimes multiple – bank accounts.  The amount of interest owed is reduced by the amount held in the linked accounts.  In the interim, a person has access to this account and can withdraw deposits as required[1].

Monies held in an offset mortgage account are subject to Zakat. Nevertheless, whilst Zakat purifies your wealth, interest based transactions and funds continuously contaminate funds. Thus, one should endeavour to set himself/herself free interest bearing transactions as soon as possible. 

And Allah Ta’ālā Alone Knows Best
Mufti Faraz Adam,
www.darulfiqh.com

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