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Fatwa CenterRuling on Reducing a Deferred Debt in Exchange for Early Payment
Question
I have 30 yr mortgage for my primary residence thru guidance (Islamic finance), can I pay extra on a monthly basis towards principal to payoff early? I heard since the contract is made for a specific amount
Answer
All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad (
) is His Slave and Messenger.
There is no harm in paying off part of a debt earlier than its due date. However, if early payment results in reducing part of the agreed profit – whether this agreement was made at the time of the contract or afterward – then this is a matter of scholarly disagreement.
The majority of jurists do not permit it, while some Hanbali scholars allow it. This view was chosen by Shaykh Al-Islam Ibn Taymiyyah and Ibn Al-Qayyim 
and it is also reported from Ibn ʿAbbas 
.
This is the opinion adopted by the Islamic Fiqh Academy, on the condition that the reduction of the debt in exchange for early payment is not stipulated in advance at the time of the contract. The Academy stated: “A reduction of a deferred debt in exchange for accelerating its payment—whether initiated by the creditor or the debtor...is permissible in Islamic law and does not fall under prohibited riba, provided that the reduction is not based on a prior agreement.” (End quote)
Allah Knows best
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