HIRE PURCHASE AND MORTAGE
HIRE PURCHASE
Many expensive goods cannot be bought easily by cash. These goods may be offered on
hire purchase (H.P.). That is, the purchaser pays an initial deposit and pays the balance
in a series of monthly or weekly installments. The hire purchase price is more expensive
than the cash price. The difference is the interest payable on the loan of the goods.
The hire purchase price is usually much more than the cash price
Hire Purchase Price = Deposit + Total amount paid in monthly payments
Example
A television can be purchased for $ 1800 cash or on H.P. for a deposit of 20% and 18
monthly payments of $ 90. Find the:
a. H.P. price
b. Interest charged
c. Percentage interest charged
Solution
Given information:
● Cash price of the television: $1800
● Deposit for H.P.: 20% of the cash price
● Number of monthly payments: 18
● Monthly payment amount: $90
Step 1: Find the H.P. price.
Deposit = 20% of $1800
HIRE PURCHASE AND MORTAGE
20
= 100
× $1800
= $360
Total amount paid in monthly payments = 18 × $90 = $1620
H.P. price = Deposit + Total amount paid in monthly payments
= $360 + $1620
= $1980
Step 2: Find the interest charged.
Interest charged = H.P. price - Cash price Interest charged
= $1980 - $1800
= $180
Step 3: Find the percentage interest charged.
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑑
Percentage interest charged = 𝐶𝑎𝑠ℎ 𝑝𝑟𝑖𝑐𝑒
×100%
180
= 1800 × 100%
= 10%
Therefore, the answers are:
1. H.P. price: $1980
2. Interest charged: $180
3. Percentage interest charged: 10%
Try these: Individual Practice
1. The cash price of a refrigerator is $3020. It can be bought on hire purchase for a
deposit of 20% and 24 monthly payments of $110.
a. H.P. price
b. Interest charged
c. Percentage interest charged
Monthly : $ 165. 60
CASH : $ 3, 105.00
HIRE PURCHASE AND MORTAGE
2. The notebook above can be bought on H.P. with a down payment of $ 345 and 18
monthly payments of $ 345 and 18 monthly payments of $ 165.60. Calculate
a. H.P. price
b. Interest charged
c. Percentage interest charged
d. The original cash price of the notebook before the 10% discount.
MORTGAGES
Few people can afford to pay cash when they buy a house. Houses are usually bought on a
type of hire purchase agreement made with the bank.
The purchaser first pays a deposit and the bank gives them a loan or a mortgage to cover
the balance. The mortgage is repayable monthly over a long period. The interest payments
on such loans are high.
Example
A home costing $ 80, 000 can be bought with a 10% deposit and a bank mortgage.
Find:
a. The mortgage amount
b. The total repaid on the bank if monthly payments of $ 720 are made over 25
years.
Solution
Given information:
● Cost of the home: $80,000
● Deposit: 10% of the cost
● Monthly payment: $720
HIRE PURCHASE AND MORTAGE
● Loan term: 25 years
Step 1: Find the mortgage amount.
Mortgage amount = Cost of the home - Deposit Deposit
= 10% of $80,000
10
= 100 × $80,000
= $8,000
Mortgage amount = $80,000 - $8,000
= $72,000
Step 2: Find the total repaid on the bank mortgage.
Total repaid = Total monthly payments
Total monthly payments = Monthly payment × Number of months
= 25 years × 12 months/year
= 300 months
Total repaid = $720 × 300
= $216,000
Therefore, the answers are:
1. Mortgage amount: $72,000
2. Total repaid on the bank: $216, 000
Note: The total repaid on the bank ($216,000) is greater than the mortgage amount
($72,000) because it includes the interest charged by the bank over the 25-year loan
term.
The interest on the mortgage amounted to $ 216, 000 - $72, 000 = $ 144, 000
This is more than the cost of the house.
Why do you think the interest charged is so large?
The mortgage is 90% as the purchaser has made a deposit of 10% and only needs to
borrow 90% of the cost of the house.
Try this: Individual Practice
1. A core house has a cash price of $80, 000. The People’s Bank offers you a 90%
mortgage over 20 years.
Find :
HIRE PURCHASE AND MORTAGE
a. The deposit payable
b. The total monthly payment if $795 is to be paid each month.
c. The amount you will pay for your house altogether
SOLUTION
Given information:
● Cash price of the refrigerator: $3020
● Deposit for H.P.: 20% of the cash price
● Number of monthly payments: 24
● Monthly payment amount: $110
Step 1: Find the H.P. price.
H.P. price = Deposit + Total amount paid in monthly payments
Deposit = 20% of $3020
20
= 100 × $3020
= $604
Total amount paid in monthly payments = 24 × $110 = $2640
H.P. price = $604 + $2640 = $3244
Step 2: Find the interest charged.
Interest charged = H.P. price - Cash price Interest charged
= $3244 - $3020
= $224
Step 3: Find the percentage interest charged.
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐ℎ𝑎𝑟𝑔𝑒𝑑
Percentage interest charged = 𝐶𝑎𝑠ℎ 𝑝𝑟𝑖𝑐𝑒
× 100%
224
= 3020
× 100%
≈ 7.42%
Therefore, the answers are:
1. H.P. price: $3244
2. Interest charged: $224
3. Percentage interest charged: 7.42%
