All about Islamic,shariah-compliant mortgage

• What is an Islamic Mortgage
• Types of Sharjah Compliant Mortgage
• Advantages of Islamic House Financing
• Banks Offering Islamic Mortgage
• Eligibility and Application Procedures
• FAQs

Buying a home is a major milestone, but conventional mortgages pose a challenge for those who follow Islamic principles due to interest (riba), which is prohibited in Islam. This is where Islamic mortgage, also known as Shariah-compliant home financing, comes in. Instead of charging interest, these financing options follow ethical and transparent structures based on profit-sharing, leasing or joint ownership. In this blog, we’ll break down how Islamic mortgages work, their benefits and what makes them different from traditional home loans.

Key Concept of Islamic Mortgage

Islamic mortgages, also known as Shariah-compliant home financing, offer a way for individuals to purchase property without engaging in interest-based transactions, which are prohibited in Islam. Instead of charging interest, Islamic mortgages operate on shared ownership and profit-sharing. It ensures that all parties involved adhere to ethical and equitable financial practices.

Principles of Islamic Mortgages

• Prohibition of Riba (Interest): In Islamic finance, earning or paying interest (riba) is strictly forbidden. Instead, profits are made through legitimate trade and investment in assets. This ensures that earnings are directly linked to real economic activities, promoting fairness and transparency.

• Risk Sharing: Unlike conventional mortgages, where the borrower bears the majority of the risk, Islamic mortgages emphasise shared risk between the lender and the borrower. This collaborative approach ensures that both parties have a vested interest in the property’s success.

• Ethical Investments: Islamic finance adheres to strict ethical guidelines, avoiding investments in industries considered harmful or unethical, such as alcohol, gambling or tobacco. This ensures that the financing contributes positively to society.

Types of Islamic Mortgage

Want to opt for a halal mortgage? Here are the different types of Islamic Mortgages.

Ijara (Leasing)

In this arrangement, the bank purchases the property and leases it to the client for a fixed period. The client makes rental payments, and at the end of the lease term, ownership of the property is transferred to the client.

Musharakah (Partnership)

Here, both the bank and the client jointly purchase the property, each owning a specific share. Over time, the client buys the bank’s share through periodic payments, eventually becoming the sole owner.

Murabaha (Cost-Plus Financing)

In this model, the bank buys the property and sells it to the client at an agreed-upon price, which includes a profit margin. The client pays this amount in instalments over a set period.

Istisna (Construction Financing)

Istisna is a Shariah-compliant option for financing under-construction properties. The bank funds the project based on agreed-upon terms, while the customer makes payments in instalments or upon completion. It offers flexibility while adhering to Islamic principles, making it ideal for custom-built homes or real estate investments.

Those who want to opt for conventional house financing loans can go through the different types of mortgages in Dubai.

Benefits of Islamic Mortgages and Shariah Compliance

Opting for a Shariah-compliant mortgage in the UAE brings several benefits, offering a fair and transparent way to finance your home.

Interest-Free Financing

Islamic mortgages eliminate interest (riba) and replace it with ethical financing structures like Ijara and Murabaha. In Ijara, the bank buys and leases the property to the customer, who pays rent instead of interest. In Murabaha, the bank purchases the property and resells it at a profit, with payments made in fixed instalments.

Transparent Agreements

Islamic home financing ensures clarity with fixed profit rates and clearly defined repayment terms.

Shared Risk and Responsibility

With Musharaka (co-ownership), both the bank and the customer share ownership of the property. The customer gradually buys the bank’s share, reducing financial risk. This structure ensures a fairer distribution of responsibility compared to conventional mortgages, where the borrower bears the full burden.

Ethical Investment Practices

Funds from Islamic mortgages are invested in socially responsible sectors, avoiding industries like alcohol, gambling and weapons. This ensures that home financing aligns with ethical and sustainable business practices.

Flexible Financing Structures

Islamic mortgages offer tailored solutions to meet different financial needs. Ijara provides predictable rental payments with an option to buy, while Murabaha offers fixed instalments for financial stability. These options ensure a financing plan that suits various budget preferences.

Banks in UAE Offering Shariah-Compliant House Financing

If you are looking for a halal mortgage when financing your home, these leading banks in the UAE offer different types of Islamic Mortgage:

• Abu Dhabi Islamic Bank (ADIB)
• RAK Bank
• Central Bank of Dubai (CBD)
• National Bank of Fujairah (NBF)
• Emirates Islamic Bank
• Noor Bank
• Sharjah Islamic Bank
• Ajman Bank
• Al Hilal Bank
• Abu Dhabi Commercial Bank (ADCB)
• Mashreq Bank
• Commercial Bank of Dubai (CBD)
• Al Rayan Bank
• Al Masraf
• Dukhan Bank

You can also check out our blog on different mortgage loans from UAE banks.

Eligibility Criteria and Application Process for Islamic Mortgage

Who Can Apply

Islamic financing is open to UAE Residents and non-resident expatriates. The key requirements include a stable income and a good credit history to assure the bank of the applicant’s ability to meet financial commitments. While based on Shariah principles, Islamic mortgages are not limited to Muslims. Anyone looking for an ethical, interest-free financing solution can apply.

Eligibility depends on the nature of the business seeking financing. It must comply with Islamic guidelines, meaning it cannot engage in activities like alcohol sales, gambling or speculative trading. The business should also follow transparent operations and align with risk-sharing and asset-backed financing principles.

Application Process

Once you’ve met the eligibility criteria, here’s how to proceed with the application:

Consultation and Product Selection

The process starts with a consultation, during which the bank assesses the applicant’s needs and explains suitable Islamic mortgage options, such as Murabaha (cost-plus financing) or Ijara (lease-to-own). The goal is to ensure the applicant understands the financing structure and obligations.

Submitting Documents and Applications

Applicants must provide necessary documents, including ID proof, income statements and business details (if applicable). The bank reviews these to ensure compliance with Shariah principles and financial eligibility.

Approval and Agreement

Once approved, a financing agreement is prepared. Unlike conventional loan contracts, this agreement follows Islamic finance principles like profit-sharing or leasing instead of interest-based lending. Both parties sign the contract outlining repayment terms, rental payments and ownership transfer details.

Disbursement and Repayment

Depending on the chosen financing structure, the bank may purchase the property and either lease or sell it to the applicant. Repayments follow the agreed terms until full ownership is transferred, whether through rental payments (Ijara) or fixed instalments (Murabaha).

FAQs

What is the difference between an Islamic mortgage and a normal mortgage?

Unlike conventional mortgages that charge interest, Islamic mortgages follow profit-sharing models like Ijara or Murabaha.

Can I use an Islamic mortgage calculator?

Yes, different banks offer Islamic mortgage calculators to provide estimates to potential home buyers. You can visit banks’ official websites and use their calculators.

Can non-resident investors get a mortgage loan in Dubai?

Yes, overseas investors who want to purchase a property in Dubai to add to their real estate portfolio or as a holiday home can get a mortgage. You’ll enjoy various benefits as a non-resident investor with a mortgage in Dubai, including high loan amounts and increased flexibility.

And that brings us to the end of our guide on Islamic mortgages.

Want to know the minimum salary required to secure a loan in Dubai? Our guide reveals salary brackets for affordable and luxury housing options. Similarly, you can learn about the eligibility criteria and general process for securing a mortgage in Dubai.

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