What is an Islamic Home Purchase Plan?

Diminishing musharaka mortgage, aka the Home Purchase Plan

This is the most common type of Islamic mortgage product you will see. It is also often referred to as the “Home Purchase Plan” or “HPP”.

The concept is pretty straightforward. You buy a percentage of the house with your deposit and that is yours. The rest of the house is the bank’s and they rent that to you.

Over time you buy the bank out and your rent decreases as you buy the bank’s stake out.

Eventually you are the full owner of the property and the bank disappears.

Of course, there’s a ton more complexity to it in practice. If you’d like to take a peak under the bonnet and see how the whole thing works mechanically and legally, see this article here. It has a detailed summary of the Al Rayan structure, but most HPP providers will follow a very similar structure.