Spending Christmas in Madeira is the experience of the lifetime. However I hope you have considered the costs! It is the most expensive week of the year there and hotels are booked very early.. Also there are no flights from Funchal to Faro; you will need to fly to Lisbon airport.

Just a suggestion, but New Year in Madeira is superb. Their fire works display makes Disney World look like a display in your back garden.
Maybe you could reverse your itinerary?