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I’ve been reading some recently about sharia-compliant home financing. I’m not Muslim, but from a economic point of view the idea of not paying interest sounds interesting.

Is someone able to explain how this process works?

Furthermore, what’s the short-term cost difference between such financing and more U.S. traditional 30-year fixed mortgage? What’s the long-term overall cost difference? What are other advantages and disadvantages of sharia lending?

I’m interested in answers that address the financial aspect of sharia. Please leave religion and theology out of your answer.

1 Thought on What is the cost difference between a 30 year-fixed mortgage and sharia-compliant home financing?
  1. Reply
    August 11, 2011 at 3:37 am

    No difference… Example: If the house costs $ 200,000 at 6.0% for 30 years and your principal payment is $ 1200.00 of which $ 900.00 of it is interest. It may take you 30 yrs to pay it off. Lets say that the total interest over 30 yrs would cost you an additional $ 300,000, this amount is added to the cost of the house $ 200,000 = $ 500,000. The only difference is that they calculate your purchase based on a home value of $ 500,000 rather than $ 200,000, the terminology is diffrent so that the word “interest” is not used. Please note that in certain ME countries interest is prohibited all together. If you bought a house in Saudi Arabia for $ 200,000, all you would be required to pay back that amount only without any interest.

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