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snasir786

Traditional Mortgage (Interest-Based Loan)

    The bank lends you money and charges you extra (interest) just because they let you borrow it.
    If you can’t pay back, the bank still expects more money from you.
    In Islam, this is unfair because the bank makes money without sharing any risk.

Islamic Mortgage (Interest-Free, but with Profit)
    The bank buys the house first and then sells it to you at a higher price, which you agree on from the start.
    There’s no hidden interest—just a fair trade where the bank takes some risk.
    This is allowed in Islam because it’s a real sale, not just renting money.

So, in a traditional mortgage, the bank is making money from lending, while in an Islamic mortgage, the bank is making money through trade. Islam allows trade but forbids interest!

Having said that, most Islamic banks are not following the true Islamic Finance principles . The bank is supposed to buy the property and then sell it to you. So, there should be two transactions; one between the Seller and the bank as a buyer. Second transaction would make the bank seller and you the buyer. Both transactions have to be independent. Risk/reward is a requirement for the transaction to be sharia compliant . The bank buying the property first is taking the risk because the property will be bank’s responsibility until it is sold to you. You as a buyer can also back out which is the risk bank is taking to make that extra profit.

Unfortunately, I am not sure which bank is truly following these guidelines.

https://www.reddit.com/r/IslamicFinance/comments/1imlc9s/explain_like_im_5_difference_between_islamic/