Is Islamic home finance more expensive than a home loan?

Last updated 2 November 2026 · Reviewed by Riyadh Financial Services Compliance

Why do people think Islamic finance costs more?

There are a few reasons the question comes up:

• There are fewer providers. Islamic home finance in Australia is offered by a small number of specialist providers. Larger lenders can sometimes price more sharply because of their size.
• The structure is different. Shariah-compliant finance needs its own documents and a Shariah review, alongside the usual credit contract and mortgage.
• Headline rates aren't the whole story. A low advertised rate can come with higher fees, and the other way round. Comparing one rate with another doesn't show the full cost.

None of these means Islamic home finance will always cost you more. They're reasons to compare carefully.

Why is the rental rate similar to an interest rate?

Under Ijarah, the financier earns rent for the use of its interest in a real asset, the property. It doesn't earn interest on money lent. But the financier still has to fund the property in the Australian market, so rental rates are set with reference to market funding costs, in the same way conventional rates are.

Many scholars accept using a market rate as a benchmark to set rent. What makes the finance Shariah-compliant is the structure: the return comes from rent on a real asset, not from lending money for money.

What makes up the cost of Islamic home finance?

• The rental rate. It can be variable, or fixed for a period on selected Ijaar home finance. Variable rates can go up or down.
• One-off fees, such as valuation, establishment and settlement fees.
• A risk fee. Depending on how much you finance compared with the property's value, a risk fee may apply instead of lenders mortgage insurance.
• Ongoing fees, such as account fees and fees for features like redraw or an offset sub-account, available on selected Ijaar home finance.
• Purchasing costs that apply to any purchase, such as stamp duty, legal fees and government registration fees.
• Conventional property insurance, which you need with any home finance. Takaful isn't currently available through our products.

Can features reduce what you pay?

Yes, depending on how you use them. On selected Ijaar home finance:

• Extra payments reduce the amount financed, so you pay rental on a smaller amount.
• The offset sub-account lets money you hold reduce the rental you pay. It isn't an interest offset account: no interest is paid or charged.

Your broker can show you how these features work and what they cost.

How do you compare Islamic finance with a home loan fairly?

1. Ask for the full list of fees for each option, both one-off and ongoing.
2. Compare the rate and the fees together over the time you expect to keep the finance, not just the headline rate.
3. Compare features you'll actually use, such as extra payments, redraw and an offset sub-account.
4. Check what happens if things change, such as selling, refinancing or paying out early.
5. Weigh up what matters to you. For many customers, finance that's structured to avoid riba is part of the value. How much weight you give that is your decision.

Ask your broker to give you the figures in writing.

General information only. It isn't financial, tax or religious advice and doesn't consider your objectives, financial situation or needs. Fees, charges and credit criteria apply.