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Home Equity and Refinancing

What is Diminishing Musharaka?



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Musharaka in Arabic means "partnership", so a diminishing musharaka is a diminishing partnership, in the sense that a home buyer and his/her bank are partners in the purchase of the home. The diminishing musharaka contract generally provides for the home buyer to contribute a deposit, while the bank pays the rest, and the two become co-owners of the home. The home buyer lives in the house, paying rent to the bank as well as regular scheduled purchases of "units" of the bank's share of the house. As the bank's ownership decreases/diminishes, the rent decreases accordingly, until the home buyer has bought out the bank and owns the house outright. For a more detailed explanation, see here: http://www.darululoomkhi.edu.pk/fiqh/islamicfinance/dm.html