What is the ruling on exchanging an interest-based loan for a Tawarruq loan from an Islamic bank to pay off the remainder, and does this purify the money and the house?
It is not permissible to borrow with usury except in the case of a compelling necessity that cannot be averted except by it. Necessity is defined as a state where a person will perish or suffer severe hardship if they do not consume what is forbidden. Purchasing a home is not a compelling necessity as long as renting a dwelling is possible. You must repent to Allah for this.
Regarding the question, if the intent of the Tawarruq system is to purchase a commodity from an Islamic bank in installments and then sell it for cash to pay off what is owed to the usurious bank, then there is no harm in that, provided the Tawarruq transaction adheres to the guidelines. With repentance, nothing more is required of you than that.
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