Islamic Home Finance Calculator

Understanding Islamic Home Finance

Islamic finance follows Sharia principles, which prohibit interest (riba), excessive uncertainty (gharar), and gambling (maysir). For home financing, there are two main structures:

Murabaha (Cost-Plus Sale)

In a Murabaha arrangement, the Islamic bank purchases the property and then sells it to you at a higher price, with the markup clearly disclosed. You pay this amount in installments over the financing term.

• The bank buys the property at market price
• The bank sells the property to you at a marked-up price (cost plus profit)
• You pay a down payment and the remainder in fixed installments
• The total cost is known upfront with no compounding

Diminishing Musharaka (Co-Ownership)

In Diminishing Musharaka, you and the bank co-own the property. You gradually purchase the bank's share while paying rent on the portion you don't yet own. As your ownership increases, the rent decreases.

• You and the bank jointly purchase the property
• You pay rent to the bank for their share of the property
• You gradually buy the bank's share over the term
• Your ownership increases while rental payments decrease

Key Differences from Conventional Mortgages

• No interest (riba) is charged
• The bank takes genuine ownership risk in the transaction
• Profit rates are fixed and don't compound
• Terms are clearly defined with no hidden charges
• Payments are for real assets, not just the time value of money