What's the difference between Murabaha and Ijara (lease-to-own)?
In Murabaha, the bank buys the property and sells it directly to the customer, with ownership transferring immediately at signing (subject to a mortgage registered in the bank's favor). In Ijara (lease-to-own), the bank retains ownership and leases the property to the customer for a monthly rent, with ownership transferring gradually or at the end of the contract. Both structures are common in the Saudi market, with differing tax and registration implications.
Why is the effective APR higher than the advertised deferred-sale rate?
Because the deferred-sale profit is calculated once on the full financed amount for the whole term, even after you've repaid much of it through installments. The effective APR (used for comparison with conventional financing) assumes calculation on a declining balance instead — so it always appears higher than the advertised nominal figure, especially over long terms.
Can I make early repayment under a Murabaha contract?
Yes, the customer has the right to early repayment, and the financier must clarify the compensation mechanism (if any) and how it's calculated within the contract terms, as required by the Real Estate Finance Law's implementing regulation.
Is the down payment included in the deferred-sale profit calculation?
No. Under SAMA's officially approved contract template, the deferred-sale profit is calculated only on the financed amount (property price minus the down payment), and neither the down payment nor other additional fees are included in this calculation.
Are the down payment and financing caps the same for Murabaha and conventional financing?
Yes, SAMA's loan-to-value rules (90% for a first home, 70% for a second) and debt-burden-ratio limits apply to real-estate financing generally, regardless of whether the Sharia-compliant or conventional structure is used.
