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Update 13.11.2024
Al Baraka Bank’s Residential Finance provides Shariah-compliant mortgage solutions tailored for property purchases, refinancing, and investment. These options, based on profit-sharing instead of traditional interest, offer clients flexible terms, competitive profit rates starting at 10.25%, and repayment periods from 3 to 30 years. Programs are designed to accommodate first-time homebuyers, refinancing needs, and bond-switching, aligning with Islamic values while delivering adaptable, customer-focused financing.
Types of Al Baraka Bank Home Finance
Buying a Home (Musharaka 3rd Party). Provides financing for purchasing a home with a repayment term of up to 30 years. This option features no monthly administration fees, a fixed profit rate for the first 12 months with an annual review, and allows for lump-sum payments during the review period. Additionally, there are no penalties for early settlement, and clients benefit from discounted attorney fees for bond registration.
Home Refinance (Musharaka Purchase of Equity). Allows clients to refinance up to 90% of their property’s value with a maximum repayment term of 20 years. Like other Al Baraka mortgages, it features no monthly administrative fees, a fixed profit rate for 12 months with an annual review, and the option for lump-sum payments. This refinance option includes no penalties for early settlement and offers reduced attorney fees for bond registration.
Bond Switching (Musharaka Purchase of Equity). Facilitates the transfer of an existing bond to Al Baraka, covering up to 90% of the property’s value with a repayment term of up to 20 years. It includes a fixed profit rate for the initial 12 months with an annual review, and clients can make lump-sum payments during this period. Like other options, it has no monthly administrative fees, no early settlement penalties, and discounted fees for attorney bond registration.
Key Features
Flexible Repayment Terms. Al Baraka Bank offers repayment terms of up to 30 years for first-time home purchases, making it accessible for various financial situations.
Shariah-Compliant Financing. All mortgage options are based on Islamic financing principles, specifically Musharaka (partnership-based) structures, providing ethical finance alternatives without interest-based components.
No Monthly Administration Fees. Al Baraka mortgages come with the benefit of no monthly administration fees, helping clients save on recurring costs associated with traditional loan management.
Fixed Profit Rate with Annual Review. The initial 12-month period features a fixed profit rate, with an annual review thereafter, offering predictability in payments while allowing for flexibility over time.
Early Settlement Flexibility. Clients can settle their mortgage early without penalties, supporting financial freedom and flexibility in repayment.
Discounted Bond Registration Fees. Al Baraka Bank offers reduced fees for bond registration through participating attorneys, providing savings on initial costs associated with property financing.
Pros and Cons
Pros
Competitive Profit Rate. Al Baraka’s fixed profit rate during the first year provides clients with a stable cost structure, reducing concerns over fluctuating rates during the early stages of repayment.
High Financing Percentage. Financing options cover up to 90% of the property value, making it easier for clients to secure homes or refinance with lower upfront cash requirements.
Ethical Banking Commitment. As an Islamic bank, Al Baraka follows ethical finance principles, offering a unique alternative to conventional mortgage products, which appeals to clients seeking Shariah-compliant solutions.
Cons
Annual Rate Review. The profit rate is subject to an annual review after the initial fixed period, which could lead to adjustments in repayment costs based on the bank’s current rates.
Requirement for In-Person Documentation. For initial application and document verification, clients may need to visit an Al Baraka branch, which could be less convenient compared to fully digital application processes.
Expectation of Full Transparency from the Client. As a partner in the transaction, Al Baraka Bank requires maximum financial transparency and adherence to contractual conditions, which may necessitate that the borrower provide a more comprehensive document package and undergo a longer assessment process.
How to Get an Al Baraka Bank Home Finance?
Evaluate Your Finances. Assess income, expenses, and debts to ensure monthly payments fit your budget. Use available tools or consult with Al Baraka for assistance.
Explore Home Finance Options. Review Al Baraka’s Shariah-compliant products like Musharaka or Ijara to find the best match for your needs and property type.
Consult with a Home Finance Specialist. Speak to an Al Baraka consultant for tailored advice on mortgage options, required documents, and terms suited to your profile.
Gather Required Documents. Prepare income proof, bank statements, ID, and additional documents specific to Shariah financing. Ensure everything is complete to avoid delays.
Request Pre-Qualification. Obtain a pre-qualification to understand your eligibility and approximate financing range before fully applying.
Submit Full Application. Complete your application at a branch or online, providing all required details and documents.
Credit and Document Assessment. Al Baraka will verify your financial stability and credit profile as part of the partnership basis for financing approval.
Property Valuation and Agreement. After property valuation, finalize the financing agreement, detailing terms and responsibilities under Shariah principles.
Sign and Register. Sign the legal documentation to formalize the financing, and Al Baraka will register property or lease terms.
Fund Disbursement. Upon registration, Al Baraka releases funds directly to the seller or developer, completing the mortgage process.
Requirements and Conditions
Requirements
Residency Status. Applicants must be South African citizens or permanent residents.
Age Requirement. Applicants must be at least 18 years old. Loan terms generally cannot extend beyond the applicant’s retirement age.
Proof of Income. Employed individuals need to submit recent payslips and bank statements, typically covering the last three months. Self-employed applicants must provide financial statements verified by an accountant.
Identification Documents. A valid South African ID or passport is required. If applicable, a marriage certificate or antenuptial contract may also be needed.
Offer to Purchase. A signed offer to purchase agreement for the property is required.
Credit History. A comprehensive credit history assessment is part of the approval process.
Property Documentation. For specific mortgage types, additional property documents may be required, including building permits or valuation reports.
Conditions
Loan Amount. Financing is available for properties priced between R100,000 and R10,000,000.
Payment Term. Loan terms range from 3 to 30 years, providing flexibility for various financial planning needs.
Deposit Requirement. Al Baraka Bank typically requires a deposit amount ranging from a minimum of 10% to a maximum of 90% of the property’s purchase price.
Profit Rate. The bank offers profit rates starting at 10.25% and going up to 20.00%, based on credit history, loan-to-value ratio, and other financial assessments.
Transfer Costs. An estimated transfer cost of R24,809 applies, covering legal and administrative fees associated with the property transfer.
Bond Registration Costs. An additional bond registration fee of R22,900 is required for processing and securing the mortgage bond.
Initiation Fee. A one-time initiation fee of R6,037.50 is applicable for natural persons, covering administrative and processing costs.
Early Settlement. Clients may settle the mortgage before the end of the term without incurring early settlement penalties, offering added flexibility.
Monthly Payments and Service Fees. Monthly payments include the principal and profit, with automatic payment scheduling options available for ease of management.
Ways to Receive the Money
Upon approval, Al Baraka Bank disburses the mortgage funds directly to the conveyancing attorneys or, in cases involving new construction, to the construction company, ensuring secure management of the transaction. The funds are used solely for the designated property purchase or building costs and are not transferred to the borrower’s personal account or card.
How to Repay Al Baraka Bank Home Finance?
Automatic Debit Orders. Set up an automatic debit order from your Al Baraka Bank account to ensure monthly mortgage payments are made on time, helping you avoid missed payments and maintain a consistent repayment schedule.
Flexible Payment Frequency. Choose from options that align with your financial planning, such as monthly payments or the option to pay a lump sum annually, which can significantly reduce the outstanding balance and interest.
Online and Mobile Banking. Use Al Baraka Bank’s online banking platform or mobile app to manage mortgage payments, view statements, and monitor your repayment progress anytime, anywhere.
Prepayment Options. Al Baraka Bank allows you to make additional payments, including lump-sum prepayments, without penalties, giving you the flexibility to accelerate repayment and save on interest.
Things to Pay Attention to
Interest Rate Terms. Review the profit rate offered, which ranges from 10.25% to 20%, based on your credit profile and deposit amount. Understanding how this rate is structured and any factors that may adjust it over time will help you forecast your repayment costs accurately.
Loan-to-Value (LTV) Ratio. Al Baraka Bank requires a minimum deposit of 10% and allows financing up to 90% of the property’s purchase price. This ratio impacts the initial cash you need, so be prepared with funds for the deposit and understand how your LTV ratio affects your loan's terms.
Monthly Payment Amount. Ensure the monthly installment amount is affordable within your budget. This will depend on the profit rate, loan amount, and term length, which can extend up to 30 years. Calculate whether the installment is manageable alongside your other financial obligations.
Credit History. A strong credit record can help you secure a more favorable profit rate. Check your credit score in advance and address any issues, as Al Baraka will assess your credit profile to determine eligibility and rate offers.
Documentation Requirements. Prepare the full documentation, including proof of income (e.g., recent salary slips or financial statements), identification, and proof of South African residency. Self-employed applicants will need additional documentation, such as tax certificates and bank statements, to demonstrate financial stability.
Prepayment and Repayment Flexibility. Understand the options for additional lump-sum payments or prepayments without penalties. Annual lump-sum prepayment options are available, and making use of these can reduce the total profit cost over the loan term.
Associated Fees and Costs. Be aware of the initial costs such as the transfer cost of R24,809, bond registration cost of R22,900, and an initiation fee of R6,037.50. Factor these into your budget as they will add to the upfront cost of securing the mortgage.
Editorial Opinion
Al Baraka Bank’s Residential Finance provides a flexible, Shariah-compliant mortgage with competitive profit rates, repayment terms of up to 30 years, and no penalties for early settlement, making it a solid choice for clients seeking ethical financing. Key benefits include the absence of monthly fees and discounted registration costs, though the annual rate review could lead to increased payments over time. Clients must also prepare for a detailed financial assessment, which may extend the application process. With its adaptable terms and focus on ethical principles, Al Baraka Bank offers a valuable alternative, but clients should be mindful of potential rate adjustments and upfront costs.
Does Al Baraka Bank offer Residential Finance options for non-residents or individuals on temporary work visas in South Africa?
Al Baraka Bank’s Residential Finance products are primarily designed for South African citizens and permanent residents. In some cases, non-residents or individuals on specific work visas may be considered, but they would typically need a higher deposit, around 50% of the property value, and are subject to additional approvals. Consultation with an Al Baraka advisor is recommended for details on current policies.
Can Al Baraka Bank clients include co-applicants on their Residential Finance application, and if so, how might this affect eligibility?
Yes, Al Baraka Bank allows clients to add co-applicants to their Residential Finance application, which can enhance eligibility by combining income sources. Each co-applicant undergoes the same financial evaluation as the primary applicant, and joint applications may allow for higher financing amounts or more favorable terms based on collective financial strength.
Does Al Baraka Bank offer any insurance options with its Residential Finance products to protect against default or financial hardships?
Al Baraka Bank offers optional protection plans that cover repayments in case of financial hardship, such as loss of income, disability, or death. These plans are Shariah-compliant, ensuring coverage aligns with ethical finance principles. Clients interested in this added security should inquire about specific terms, coverage limits, and associated costs.
Can clients refinance their Al Baraka Bank Residential Finance product if their financial situation improves or if they wish to adjust payment structures?
Yes, Al Baraka Bank allows clients to refinance their existing Residential Finance arrangement under the Musharaka structure, which can involve adjusting profit rates, payment terms, or other conditions. This flexibility can help clients align their payments with improved financial circumstances or take advantage of changing rates after the annual review.
Are there benefits or incentives for clients making early or larger-than-required payments on their Residential Finance?
While Al Baraka Bank permits early or lump-sum payments without penalties, there are no direct rewards or incentives for doing so. However, clients can reduce their overall profit costs by consistently paying above the minimum requirement, leading to faster repayment and lower long-term financing costs due to the Musharaka structure.