Diminishing Musharakah Calculator
Diminishing Musharakah Calculator
Co-ownership home finance: the monthly payment of rent on the bank’s share plus the units you buy back, your share of the home year by year, and the total you pay.
Diminishing Musharakah payment
Home $60,00,000, your share 25%, rental rate 10%, 15 years, level payments
Diminishing Musharakah payments
- B
- the bank’s share at the start: price × (1 − your share)
- x
- the rental rate ÷ 12
- n
- the number of monthly payments
- rent
- x × the bank’s share at the start of the month; the rest of the payment buys units
Worked example
Home $60,00,000, your share 25%, rental rate 10%, 15 years, level payments
Bank's share = 60,00,000 × 75% = $45,00,000
Payment = 45,00,000 × 0.10/12 ÷ [1 − (1 + 0.10/12)−180] = $48,357
First month: rent $37,500, buying units $10,857
Rent over 15 years: $42,04,301; your share after 5 years 39.0%
With equal units instead: $62,500 in the first month, falling to $25,208; rent $33,93,750
How Diminishing Musharakah works and is priced
In a Diminishing Musharakah (musharakah mutanaqisah) you and the bank buy the home together as partners. The bank’s share is divided into units. You live in the home, pay rent for the use of the bank’s share, and buy its units over the term, so your share rises to 100% and the rent falls away. It is the structure behind Meezan Bank’s Easy Home in Pakistan and many Islamic home finance products in Malaysia and elsewhere.
Two ways banks set the payment. Some banks charge a level payment. Its arithmetic is that of a reducing-balance EMI at the rental rate: the rent on the bank’s shrinking share falls each month, and the part that buys units grows by the same amount. Affin Bank’s Musharakah Mutanaqisah term financing disclosure sheet, for example, shows RM 7,933.34 a month on RM 500,000 at 8.56% for 7 years, which is exactly that EMI. Other banks sell a fixed number of units each month. Meezan Bank’s UMI model keeps the unit price constant and adjusts the rent to the bank’s remaining share, so the payment starts higher and falls. On the example the level payment is $48,357 throughout; equal units start at $62,500 and end at $25,208, and because the bank’s share is bought faster, the rent comes to $8,10,551 less. Choose the convention your offer uses.
What the page holds constant. Rental rates are usually tied to a benchmark and reviewed: Meezan Bank reprices yearly against KIBOR plus a margin, with a floor and a cap. This page keeps one rate throughout. Buying extra units early is usually allowed and cuts the rent; the price of those units and any fees are set by the contract. Property tax, takaful and maintenance are shared or assigned by the agreement.
For comparison, the murabaha calculator prices an Islamic cost-plus sale, and the EMI calculator a conventional loan at the same rate, which gives the same monthly figure as a level payment here. To work out your initial share, see the down payment calculator. This page does the arithmetic; whether a contract is Shariah-compliant is for the bank’s Shariah board and your own scholar. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How is the Diminishing Musharakah monthly payment calculated?
Rent on the bank’s share (rental rate ÷ 12 × its share) plus a purchase of units. With a level payment it equals a reducing-balance EMI: 45,00,000 at 10% for 15 years is $48,357 a month.
Is Diminishing Musharakah the same as a conventional home loan?
The contracts differ: you co-own the home and pay rent and buy units, rather than borrowing. The level-payment arithmetic can be identical to an EMI at the same rate, so compare offers on the total paid.
Why does my payment fall each month?
Your bank uses equal units: you buy the same slice of its share every month, and rent is charged only on what it still owns, so the rent, and the payment, fall.
Can I buy the bank’s share early?
Usually yes, by purchasing extra units, which reduces the rent from then on. The unit price and any fees are set in the agreement; Meezan Bank, for example, sells units at a higher price if the property has appreciated.
Related calculators
References
- Meezan Bank. Easy Home (Diminishing Musharakah): bank’s share divided into units rented to the customer, who buys units monthly; UMI model with a constant unit price and rent adjusted to the bank’s remaining share; financing up to 75% for salaried customers; rent KIBOR + margin, repriced annually. https://www.meezanbank.com/easy-home/
- Affin Bank. Musharakah Mutanaqisah Term Financing-i, Product Disclosure Sheet: instalments of acquisition payment plus rental payment; example RM 500,000, 7 years, BFR 6.56% + 2%, RM 7,933.34 a month, total RM 666,400.32.
- Meera, A. K. M. and Abdul Razak, D. Islamic Home Financing through Musharakah Mutanaqisah and al-Bay’ Bithaman Ajil Contracts: A Comparative Analysis. Review of Islamic Economics, International Islamic University Malaysia.
- Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Shari’ah Standard No. 12: Sharika (Musharaka) and Modern Corporations, including diminishing musharaka.
- Central-bank inflation targets used as default inflation by currency: Reserve Bank of India (4% CPI, flexible inflation targeting framework); U.S. Federal Reserve (2% PCE); European Central Bank (2%); Bank of England (2% CPI); Bank of Canada (2%); Reserve Bank of Australia (2–3%); Bangko Sentral ng Pilipinas (3% ± 1). Actual inflation often runs above target.