if you make all your payments on time then you would pay a total of $100,000 in ten years. so you would not have to pay interest unless you get behind in payments???????????????????
so if you make them all on time then what is in it for the bank??????????i cannot see them doing anything for nothing
You and lender agree to buy property today a certian price... let's say $100,000
You and the lender agree that at the end of the contract term the value will be higher... let's say $200,000 after 10 years.
During the term of the loan, you grandually buy out the lender in level monthly payments. Using the figures above, the monthly payment would be $200,000 - $100,000 / 120 months = $833.34 per month.
Sharia law prohibits usury, so there is no fee (interest) for using the lender's money to buy the home. Essentially, Sharia law looks at this as you buying the home from the lender for the home's future value. Another way Shaira law looks at the loan is in the form of rent credits from the buyer to the lender, very much like a lease purchase. In both cases buyer and lender are vested in title at close of purchase.
I'm glossing over the fine details, but it truly is a "no interest" loan. The lender is banking on a return from the future value of the home purchased in partnership with the buyer; the buyer guarantees the return to the lender. From a lending perspective, they are somewhat fun to underwirte and close since the terms are so unusual from standard Western mortgage financing, yet it is compliant with US mortgage regs.
Let's consider a private lender. Suppose there's a house that the comps suggest is worth $330,000. You put 10% down, or $30,000, leaving a balance of $300,000. If you financed that $300,000 at a 6% interest rate over 30 years, you'd pay about $1,798 in principal and interest.
You could still pay $1,798 a month at 0% interest. Just adjust either the purchase price or the length of the loan. Shorten the loan to 167 months at 0% interest, and you'd pay off your $300,000 mortgage. Great deal for you. Or the seller could raise the mortgage amount to $644,000, and you'd still pay off your 30 year mortgage at approximately $1,798 a month. And while the house wouldn't appraise for that, who cares? It doesn't have to appraise if the seller's doing the financing.
Or you can work the numbers a different way. If you put a lot more down, your amount financed would be less. Let's say you put 50% down--$165,000. Now your mortgage would only be $165,000, and you can play with those numbers. But here's the interesting part: You put $165,000 down. Let's say the seller has an investment opportunity that will return 12% interest. If he invests that $165,000 at 12%, then that's the same as 6% interest on $330,000.
There are a lot of other creative things to do. And, frankly, that's not even my field of expertise. But I know people making lots of money dealing with discounted notes and mortgages, and other similar activities.
And keep in mind that even conventional lenders offer reduced interest rates in return for payments of points up front. You can't get the interest rate down to 0%, but you can certainly get a very low rate in return for more payment upfront.
And, more up my alley, I can think of numerous ways to do it with lease-options, equity sharing, and land trusts. The basic structure would be a relatively long time frame. When the property would be sold, you'd get back your initial contribution. The investor would get back his initial contribution. Then you would get back the remainder up to the initial purchase price. The the investor would receive profits calculated by a percentage return on his initial contribution. And finally, you and the investor would divide any amount received over that.
The bottom line is that there has to be profit in it somewhere, for someone. But there are dozens of different ways to produce a profit with 0% financing.
If you get the details from the advertiser, take the figures to an accountant or CPA just to make sure that it's a reasonable deal for you.
Hope that helps.
Christina Asad Edwards, REALTOR
2006 & 2007 Sales Masters Top Agent
mobile or text 937-205-4741
Real Living Realty - #1 in OHIO!
Realty, Mortgage, Title, Relocation
Here is the link to the Ohio Housing site
.You should be able to get this loan through most banks and mortgage bankers. A lot of mortgage brokers do not have access to this.
Good Luck with your search.