So I grew up in a traditional muslim household, here's my understanding of things as they've been taught to me. generally there are 2 types of loans, 1. Kharz

So I grew up in a traditional muslim household, here's my understanding of things as they've been taught to me. generally there are 2 types of loans, 1. Kharz Hasan (Loan of goodwill) given out to people/institutions without any collateral, sometimes even without a term limit. Its up to lender to decide if they want their money back or forgive the loan which then turns this loan into a "Sadqah" (charity). 2. Loan with a collateral: this is the standard loan where the two parties agree on a collateral and lend money based on that. Neither of these above loans involve any kind of interest. (My) Islamic Understanding of Mortgages: The risk profile is different compared to normal. Normally what happens is that institutions loan the amount of money and you buy the property and pay interest on the money. In the Muslim Model, the institutions BUY the property and you pay money. The money you pay goes partly towards buying the property and the partly towards paying "fees" to use the property that you don't completely own. You can see why people would say things like, "oh, they are skirting the rules by changing the name from interest to fees". However, a "proper" implementation would put more burden on the banks in case of a crash. Hope that clears up few things.