Example of an Islamic Mortgage
If the price of a property is £100,000, the buyer has to make a down payment of 10%, £10,000.
The remainder is paid by the bank. At this stage, the buyer and the bank are co-owners.
If the buyer wishes to occupy the house, he will have to pay rent to the bank.
The buyer can buy out the banks interest in the property by making additional payments.
This way, the buyers share in the property increases as the banks share decreases and the rent payments will therefore change proportionately. If the rent is the same amount as a repayment under a conventional mortgage eg £660.39, 10% goes to the buyer as his share in the property and the bank gets the 90%.
The borrower will own the property outright once the final payment has been made, (the 350th payment). The borrower will have paid a total of £231,018.30, this amount includes the banks share of the property as having been £141,018.30.
Islamic and conventional mortgages compared
