Pharos Home Purchase Plan | Commercial | Charitable and educational institutions

Frequently Asked Questions

You are advised to read through this section as you may find the answers to some of the most frequently asked questions.

Q. Why should I be sure that Pharos Home Purchase Plan is fully based on the Sharia principles?

A. Pharos’ Sharia compliant Home Purchase Plan is based on the Islamic financing principles of Ijara (leasing) and Diminishing-Musharaka (partnership). We believe that using this method of Islamic finance offers the best solution for Sharia compliant home finance in Canada today. Pharos shall not act as a third party or a middle-man to sell a third party mortgage to you. From signing the Diminishing-Musharaka Agreement to the last payment for your home, you will deal only with Pharos alone and not with any bank or money-lender.

The Pharos’ Sharia Committee, composed of independent Sharia scholars, meets on a regular basis to review all contracts and agreements relating to our transactions as well as to advise us, guide us and ensure that any new services that we introduce meet Sharia guidelines.

The Sharia Committee certifies every product and service Pharos provides - without its approval; we cannot introduce a new product or service.

Q. You state that the rent is calculated on the outstanding amount of Pharos’ share of the property under the Diminishing-Musharaka Agreement. How is the rent amount calculated for each property?

A. It is important to remember that we do not charge interest. We are the landlord and part owner of the property and have a lease contract where we charge rent and as such all of our legal documentation and our activities reflect this arrangement. However, to ensure that we give you a competitive price and to ensure that we are in line with the rest of the market, we use the rent of a comparable property with the purchased property at the beginning of the each term of the mortgage as a bench mark to ensure that our product is priced competitively with other interest based non-Sharia complaint products in the market. This has been approved by our Sharia advisory Committee.

Q. What are the steps involved?

A. An application form needs to be completed, signed, dated and returned to Pharos via a branch or the post. If you are completing the form online you can print it, or if via telephone we will post for you to sign and return with the necessary documents. The application will be considered based on Pharos’ criteria and certain information requested from you.

Once Pharos is satisfied that you meet the criteria and have provided the necessary information, you will receive a Letter of Intent (LOI). The LOI will set out the terms and conditions upon which LOI is based and you will also be sent a draft copy of the Diminishing -Musharaka Agreement and Ijara (Lease) Agreement.

On completion:

1. Pharos will pay its contribution towards the purchase of the property to the solicitor. You will pay the difference between this amount and the actual purchase price of the property.
   
   
2. Pharos will be registered at the Land Registry as the legal owner of the property.
   
   
3. You will lease the property from Pharos for an agreed number of years and you will be the registered owner of the leasehold title.
   
   
4. You pay monthly installments (Acquisition Payments) towards the purchase of Pharos share of the property (Acquisition Cost) as well as Rent for the duration of the payment term.
   
   
5. Once you have paid the Acquisition Cost and Rent due in full, the property will be transferred into your name.
   

Q. What contracts do I need to sign?

A. You will have to enter into legal agreements with Pharos. There are principally three documents (‘the Agreements’) that will be sent when your application has been approved.

1. The LOI Letter – this will contain Pharos offer to finance and will detail the transaction and the sums involved along with the steps that will be taken by Pharos to purchase your chosen property.
   
   
2. The Diminishing-Musharaka Agreement – in this agreement, Pharos will agree to sell the property to you over the Payment Term (i.e. the number of years over which you wish to acquire Pharos share of the property). Every month you agree to pay Acquisition Payments towards the Acquisition Cost of the property (i.e. the price we paid to purchase the property less your share). Once the Acquisition Cost and all Rent have been paid in full, Pharos will transfer the property to you and you become the registered owner.
   
   
3. The Lease Agreement – in this agreement, Pharos will agree to lease the property to you and in return you agree to pay monthly rent. Rent will be determined based on a number of factors, including our outstanding share in the property under the Diminishing Musharaka Agreement and the market researched rental value of the property.

Q. Can I make additional payments to Pharos?

A. You can make additional Acquisition Payments at any time which will increase your share in the property.

Q. Can I refinance?

A. You can switch from an existing conventional mortgage. Like a purchase, you will have to go through the legal process of Pharos buying the property from your bank.

Q. Are there any restrictions on the early settlement of the outstanding amount?

A. During the term of the home purchase plan if you decide to settle your finance early you will be required to repay to Pharos the full cost of the fees incurred (i.e. for each outstanding year of term equal amount of one month rental payment).

Q. What happens if I lose my job or am unable to pay you for any reason?

A. If your financial circumstances change for any reason and you encounter difficulty in meeting your monthly payment, it is vital that you contact Pharos as soon as possible. What action Pharos takes is dependent on the circumstances. However, Pharos promises to act fairly and reasonably at all times. You must make sure you can afford the monthly payments. If you do not keep up the monthly payments, you may lose your home.

Q. What happens if I die, as the property is in Pharos name?

A. This will be handled sensitively and respectfully. It may be possible to transfer payment obligations under a new contract to other individuals as long as they are able to demonstrate their ability to meet the payment obligations. The proportion of the value of the property that belongs to the deceased customer will become part of their estate.

Q. How does Pharos own the property that I have chosen?

A. The LOI Letter will outline how Pharos will purchases the property. Pharos will need to complete the purchase of the property rather than you, although you will carry on the negotiations with the seller’s solicitor in the usual way. On completion, Pharos will pay its contribution to the purchase price of the property (the Acquisition Cost) to the seller and you will pay your share (being the difference between the Acquisition Cost and the purchase price), and legal title to the property will transfer to Pharos.

Q. Why does Pharos hold legal title? If I am buying the property why am I not the legal owner?

A. This is necessary in order for Pharos to issue the lease which will allow you to occupy the property. Although Pharos will have the freehold title, your rights will be protected by registering the long leasehold (Ijara Agreement) in your name.

In an ordinary interest bearing loan, the mortgage provider would advance you money to assist in the purchase of the property. With such a loan you would be the legal owner but it is not Halal or Sharia compliant.

In our case there is no loan, rather the property is leased to you, so you cannot become the legal owner immediately. You do however become the legal owner once you have purchased Pharos’ share (i.e. once the balance of the Acquisition Cost has been paid) and the property has been transferred into your name in accordance with the Legal Documents.

Q. If Pharos is the legal owner does that mean that it will benefit from any increase in the value of the property?

A. You agree to choose one of the following two options at the time of signing the Diminishing-Musharaka Agreement for the whole duration of it.

(a) OPTION ONE - Whilst Pharos is the legal owner, it will not benefit from any increase in the value of the property. Pharos will receive the balance of the Acquisition Cost due under the Diminishing-Musharaka Agreement paid in purchasing the property as well as the rent due under the Ijara (lease) agreement. Any appreciation or depreciation in value of the property will be passed on to you on completion of the sale of the property under the Diminishing-Musharaka Agreement.

(b) OPTION TWO - Whilst Pharos is the legal owner, any appreciation or depreciation in value of the property will be shared according to the percentage of share ownership of the property between Pharos and you. This will be done on completion of the sale of the property or at the time of termination of the Diminishing-Musharaka Agreement.

Q. I understand Pharos will review the Rent. I have two questions concerning this
a) Why is there a review of rent at the end of the each term of the Diminishing-Musharaka Agreement?
b) What happens if the rent increases too much and what does this mean for me?

A. a) Providing a product that has fixed Ijara (rent) is important to your financial well being. It is important that the rent payable remains competitive and comparable with the interest bearing non-Islamic mortgage rate that is available by other lenders. By adjusting the rent at the end of each term, additional Acquisition Payments are taken into consideration when assessing what the new rent figure should be on each term renewal or review date.

b) Your rent will be fixed during each term of the Diminishing-Musharaka and Ijara Agreements. However, after each term, since your share of the property has increased, most likely your rent will decrease for the subsequent term.

Q. If I want to sell the property in the future, can I do so?

A. In the Diminishing-Musharaka Agreement you have the right to request Pharos to transfer the property either to yourself or to a third party. You will be required to pay the remaining balance of the Acquisition Cost due to Pharos under the Diminishing-Musharaka Agreement or, if you are selling the property to a third party, you must ensure that the selling price is sufficient for Pharos to receive the remainder of the Acquisition Cost from the sale proceeds. In either case the property will not be transferred unless all sums due to Pharos are paid.

Q. What happens if I make a late payment?

A. In case of the late payment, Pharos will follow the Sharia ruling and the spirit of the Sharia Law to be lenient and considerate. Therefore, Pharos will try to accommodate one late payment during each term of the Diminishing-Musharaka Agreement.

In case of subsequent late payment or second late payment during the existing term, Pharos will ask the Client to pay the amount of $450 CND to the charity of Pharos choice to be paid as penalty (Sharte Jazai).

In case of three late monthly payments by the Client, Pharos will consider the Client in default and breach of Diminishing-Musharaka Agreement. The entire indebtedness will be called and payment due immediately. To follow the Sharia ruling and sprit of the Sharia Law to be lenient and considerate; Pharos may try to accommodate your third late payment at its own discretion by applying another penalty of $450 CND, payable to the charity of Pharos choice.

Q. How will the property be transferred to me once the Acquisition element has been paid?

A. The Diminishing-Musharaka Agreement provides that Completion of the sale of the property to you will take place fifteen (15) business days following receipt of your final payment.