Islamic Mortgage Calculator

Choose the Contract Structure

Choose the structure the contract uses, because each one creates payments differently. The calculator models three structures that Australian providers describe: diminishing ownership, a lease with a buyout and a cost-plus sale. It shows only the inputs the chosen structure needs.

In diminishing ownership, the customer and the provider buy the home together. Hejaz's explanation of Islamic loans describes the customer buying the provider's share in instalments while paying rent on the part the provider still owns.

In a lease, the provider owns the home and the customer pays rent to live in it. A buyout at the end of the lease ends the provider's ownership. Some lease-to-own contracts fold the purchase into each payment instead. MCCA's finance products page describes this kind of contract, with title passing to the client after the final payment.

For a contract that reduces the amount owed with each payment, use the diminishing ownership cash-flow model with the quoted rental terms. This models its payments without changing its legal structure.

In a cost-plus sale, the provider buys the home and sells it to the customer for its cost plus a markup agreed at the start. The customer pays that sale price in instalments. Moneysmart's guide to Islamic finance describes this model and notes that the provider still earns a profit from the repayments.

Payments and Remaining Ownership

The calculator builds each schedule from the contract's own terms: a rent on the provider's share, a rent on the whole home or a fixed markup. Total financing cost is everything paid to the provider, less the provider's share of the price. That leaves the markup plus fees for a cost-plus sale and the rent plus fees for diminishing ownership. A lease's cost is its rent, buyout and fees, less the provider's share.

In the starting example, a $750,000 home with a $150,000 contribution leaves the provider a $600,000 share. At a 6.5% annual rental rate, the first month's rent is 6.5% of $600,000 divided by 12, or $3,250.00.

With level payments over 30 years, each monthly payment is $3,792.41, and the last is $3,790.45 because it absorbs cent rounding. The first payment pays $3,250.00 of rent and buys $542.41 of the provider's share. Each later payment pays rent on a smaller share, so more of the same payment buys ownership.

After 5 years, the provider's share left is $561,666. Rent over the full term totals $765,266. Adding $1,200 of upfront fees gives a total financing cost of $766,466.

With equal share purchases instead, each payment except the last buys $1,666.67 of the provider's share. The first payment is $4,916.67 and the last is $1,674.49. Total rent falls to $586,624 because the share shrinks faster in the early years.

A lease keeps the provider's ownership whole until the buyout. Rent of $3,250.00 a month on the same $600,000 share totals $1,170,000 over 30 years. The $600,000 buyout is still owed after the last rent, so the remaining amount stays flat until the end. None of the rent buys ownership, so the total financing cost is $1,171,200 with the same fees.

A cost-plus sale fixes the whole markup at the start. A 60% markup on the $600,000 share is $360,000, so the sale price is $960,000. The first 359 monthly instalments are $2,666.67 each, and the last is $2,665.47. The unpaid sale price falls by the instalment each month.

A percentage markup applies once to the provider's share, for the whole term. If a proposal states a yearly percentage, ask the provider for the total markup in dollars and enter that amount.

An Illustration, Not a Provider Quote

The calculator models the terms you enter. Payments for a product from Amanah, MCCA or another provider come from that provider's own quote and contract. Whether a contract complies with Sharia is also outside the calculation. Moneysmart's guide tells consumers to look for evidence behind a provider's claim that a product is Sharia compliant.

Australian law applies to these products. Moneysmart's guide says a provider of credit for a home purchase needs an Australian Credit Licence unless it is authorised or exempt.

To explain a proposal to a client, enter the price, contribution, term, payment frequency and fees from the provider's documents. Then enter the rental rate, rent, buyout or markup it states. Compare the full schedule with the provider's quote. Matching the first payment alone does not establish that later rates or the buyout also match.

If the figures differ, check whether the quoted payment includes a fee and which balance the rent is charged on. A rate that changes during the term also changes the payments. Ijarah Finance's comparison page lists both variable and fixed rental rate options. The calculator holds the entered rate for the whole term, so model a variable rate as separate scenarios.

The remaining amount is what the entered schedule still owes. A payout figure for an early sale or refinance follows the contract, so ask the provider for it. To compare the proposal with a conventional loan for the same amount, enter that loan's rate and term in the mortgage calculator.