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**Arbinknit** · 12-08-2011, 05:04 AM

From what I understand of Islamic mortgages:

In a regular mortgage, the buyer makes a down payment toward the value of the house and then takes possession of the house, while the bank gives him a loan for the difference. So for example, a man buys a $100k house. He makes a 20% down payment. The bank loans him the remaining 80% ($80k). He then pays back the loan in installments plus interest.

In Islamic mortgage, the buyer does not take complete possession of the house. Instead, the bank is a co-owner. So assuming he makes a 20% down payment, he now owns 20% of the home, while the bank owns the other 80%. Each month, he makes a "rent" payment for the portion of the home he is occupying, but not in ownership of. So suppose it's a 2000 sq ft home. The man needs to pay rent on 1600 sq ft. I assume as his equity builds, his payments decrease, theoretically, although I'm not sure exactly how it works.

That's what I have understood of the matter. If I'm incorrect, hopefully someone can give the correct explanation.

12-08-2011, 05:04 AM	#2
Arbinknit Join Date Oct 2005 Posts 458 Senior Member	From what I understand of Islamic mortgages: In a regular mortgage, the buyer makes a down payment toward the value of the house and then takes possession of the house, while the bank gives him a loan for the difference. So for example, a man buys a $100k house. He makes a 20% down payment. The bank loans him the remaining 80% ($80k). He then pays back the loan in installments plus interest. In Islamic mortgage, the buyer does not take complete possession of the house. Instead, the bank is a co-owner. So assuming he makes a 20% down payment, he now owns 20% of the home, while the bank owns the other 80%. Each month, he makes a "rent" payment for the portion of the home he is occupying, but not in ownership of. So suppose it's a 2000 sq ft home. The man needs to pay rent on 1600 sq ft. I assume as his equity builds, his payments decrease, theoretically, although I'm not sure exactly how it works. That's what I have understood of the matter. If I'm incorrect, hopefully someone can give the correct explanation.
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