Answered by Shaykh Muhammad ibn Adam al-Kawthari
If you have an interest-bearing mortgage on a house, the amount of which is more than your total ‘zakaatable’ assets (which are above the minimum amount required to pay zakaat) then do you still pay zakaat?
In the name of Allah, Most Compassionate, Most Merciful,
The general principle is that all the loans payable can be deducted from the total of Zakatable assets, when calculating the amount of Zakat. If these loans are more than the assets, Zakat will not be obligatory. Otherwise, if the remainder is to the value of the Nisab (Zakat-payable amount), one must give Zakat from it.
The Fuqaha have explained these debts as that which is demanded and claimed by other people. Whether it is the right of Allah, e.g. Zakat demanded by the Imam, or the right of the servants of Allah, such as: debts, dowry, etc. (See Radd al-Muhtar of Ibn Abidin, v, 2. p, 260 and Hidaya, v,1. p,186).
The reason behind debts preventing the obligation of Zakat is (as the Fuqaha explain) that, one of the conditions for the obligation of Zakat is that the wealth be in excess of ones personal needs. When one has debts that needs to be paid off, the Zakatable assets will not be in excess of his personal needs, as he needs to pay all or some part of this wealth to creditors.
The Fuqaha usually don’t differentiate between the debt which is payable immediately and which is deferred. However, there is a difference of opinion within the Hanafi school regarding it’s ruling. We find three different views on the matter:
1) An immediate debt and a deferred debt, both prevent the obligation of Zakat, and both will be considered.
2) Only an immediate debt will be taken into consideration, and not a deferred debt.
3) If there is determination for repaying the loan (whether immediate or deferred), it will be deducted. Otherwise, it will be included in the total of zakatable assets.
The great Hanafi jurist al-Kasani (Allah have Mercy on him) related these three opinions from our scholars, but he did not prefer any one over another. Imam al-Haskafi (Allah have Mercy on him) said in his ‘Durr al-Mukhtar’ that, even long term and deferred debts will prevent the obligation of Zakat. Ibn Abidin (Allah have Mercy on him) stated whilst commentating on this, in his supercommentry ‘Radd al-Muhtar’:
” This opinion has been referred to Sharh al-Tahawi, where it is stated that, Imam Abu Hanifa (Radhi Allahu Anhu) was of the opinion that long term debts do not prevent Zakat. al-Quhustani added that this is the more correct position in the Madhhab” (Radd al-Muhtar,V:2,P:261).
In view of the above lengthy explanation, the following is the answer to your question:
First of all, if you have the means and you are financially able to pay off the mortgage, then you must do that as soon as possible. Interest transactions are forbidden, and the quicker one rids oneself from the sin of Riba, the better.
Secondly, if you are unable to pay off your mortgage all at once, then you may deduct only that amount which is immediate. The mortgage will be paid in installments and on a long term basis. In the light of the more preferred opinion in the school, you should avoid deducting the the whole sum, which is payable by you. Only the payment which is currently due should be deducted from the total.
And Allah knows best
Muhammad ibn Adam al-Kawthari
Leicester, UK