Mortgages are big deals, and it’s understandable if you are confused about the implications of Islamic law on your mortgage situation and whether or not you need to pay zakat on the money you borrow for your house (or other property).
The good news is that this is an easy question to answer, once you know where to look in the Quran and Sunnah. Read on to find out whether or not you have to pay Zakat if you have a mortgage!
A quick definition of Zakat
Zakat is one of the five pillars of Islam, and is an obligation upon every Muslim. It has been translated to mean alms giving or purification.
It covers two categories; the income category, where one must give 2.5% of their wealth annually to those who are less fortunate, and the residual wealth category where one must give up 20% once in their lifetime to those in need for reasons that are not necessarily poverty related.
Who is liable to pay Zakat?
Muslims are generally liable to pay zakat. In order to be liable for zakat, one must meet two criteria: They must own property (or some other form of wealth), and they must not own any debt.
These are known as the two pillars of liability for zakat. It is important to note that it is possible for a person to owe zakat without being liable at all. For example, if an individual has no assets but has debts worth more than their assets, then they would not be liable for zakat.
A closer look at Mortgage in Islam
The conclusion reached by the majority of scholars is that someone with a house will not pay zakat. A minority opinion, however, states that someone with more than one piece of property should include the house among their assets to determine whether or not they owe zakat.
They use an example of one who has many different types of crops in which it would be very difficult to calculate just how much each crop is worth. So he decides to pick out only three types of crops and sell them all together as one lot.
Similarly, we could take the value of this person’s home as part of his total assets when calculating zakat due. If his total wealth falls below the Nisab threshold for the year, then he owes zakat for that year based on his housing expenses (i.e., rent).
If, however, his total wealth exceeds the Nisab threshold for the year, then he does not owe any zakat because he already owes enough from other sources (in this case from renting).
How much Zakat should we give, and how often?
Zakat is often seen as one-time donation, but the Muslim faith has a more complicated view of it. Muslims should be giving 2.5% of their wealth to the poor and needy every year. However, that percentage changes depending on how much you give.
For example, if your yearly wealth is $3000 USD, then you would need to give $750 USD as zakat per year. If your yearly wealth is $100,000 USD, then you would need to give $25,000 USD as zakat per year.
If you don’t make enough money for this amount each year (according to the Islamic teachings), then try to do what you can by donating at least 1/3 of what your income level allows for.
Give Your Zakat To The Poor; And Be Just!
Most Muslims are surprised to learn that Zakat is not only given to the poor, but it can also be used for other causes such as paying off debts and loans. This is based on the interpretation of verses 24:22-24 from Quran:
They ask thee what they shall spend (in charity). Say: Whatever ye spend that is good, is for parents and kindred and orphans and those in want and for wayfarers. And whatever ye do that is good, -Allah knoweth it well.
And think not that the giving of food or drink to the needy, or the
acceptance of an oath from them so that they might make their lives secure, will cause O Muhammad any loss or decrease with Allah; for Allah doth blot out sins and forgive again and again.