Islamic Ruling on Mortgage

Dr. Monzer Kahf, Scholar in Islamic Economics & Financial Expert, states that: “Mortgage is forbidden because it is based on Riba, and interest is unjust. It gives one party a secured future income in exchange for an expected benefit the other party in the contract get from the loan. Such a benefit may materialize or not depending on future circumstances.
This in of exchange contract does not give its two parties equal treatment. You give a guaranteed return to one and you do not know what the other will get. This is why Riba is prohibited and the Qur’an calls it getting the properties of others with no reason.
Rent/lease is not like that. In a rent contract, you give a given amount of money for a service that is well known and well defined, say of a house for a given period. It is true that this service happens in the future, and you do not know what happens in future! That is why the rent contract in the Shari’ah, and in the law too allows that if you could not get the service for a reason related to the owner of the house, e.g., did not give the key, or the characteristics of the property, e.g., a wall fell down without aggression from the tenant, you get a deduction on the rent for the amount of service you were not allowed to receive.
There are also reasons for such a reduction. There are other examples besides these examples that require more details outside this brief answer. That makes rent fair and a Riba contract unfair.
Further, it is not correct to claim that what you pay for rent is “dead money”. It is what you pay for what you get, provided no fraud, deception or extortion was in the relationship. That is why when a good group of scholars met in Nov. 1999 in Detroit, they did not say that mortgage is permissible, but they said that it forbidden because it is Riba-based, but Shari’ah allows to relax the prohibition if there are no other alternatives available to the person and there is a real need for the residence because of family, children, safety areas, etc.”