CMPS - Certified Mortgage Planning Specialist Homeowner Cash Flow Scenarios Questions and Answers

Question 1

A homeowner with a $350,000 remaining balance on their 30-year fixed mortgage at 4.5% receives a $50,000 inheritance.
Their primary goal is to lower their monthly principal and interest payment to improve their cash flow, but they are satisfied with their current interest rate and do not want to extend their loan term.
Which strategy would best accomplish this specific goal?

Accepted Answer

Requesting a mortgage recast from their servicer after making the $50,000 principal payment.

Answer

A rate-and-term refinance to a new 30-year loan.

Answer

Making a one-time $50,000 principal payment without re-amortizing.

Answer

Opening a home equity line of credit for $50,000.

Question 2

A client is considering a rate-and-term refinance on their existing mortgage. They currently have a $400,000 balance on a 30-year fixed loan at a 6.5% interest rate. The proposed refinance is a new 30-year fixed loan at 5.5% with total closing costs of $7,000. Approximately how much will their monthly principal and interest (P&I) payment decrease, and what is the breakeven point in months?

Accepted Answer

The P&I will decrease by approximately $251/month; the breakeven is 28 months.

Answer

The P&I will decrease by approximately $150/month; the breakeven is 47 months.

Answer

The P&I will decrease by approximately $251/month; the breakeven is 36 months.

Answer

The P&I will decrease by approximately $305/month; the breakeven is 23 months.

Question 3

A builder is offering a 2-1 buydown on a new home purchase with a $500,000, 30-year fixed-rate loan at a note rate of 7.0%. How does this buydown affect the buyer's monthly principal and interest (P&I) payment cash flow during the first two years?

Accepted Answer

The P&I payment is based on a 5.0% rate in Year 1 and a 6.0% rate in Year 2.

Answer

The P&I payment is fixed at a 6.0% rate for the first two years before adjusting to 7.0%.

Answer

The buyer receives a cash rebate equivalent to 2% of the loan amount in Year 1 and 1% in Year 2.

Answer

The loan principal is reduced by 2% in Year 1 and an additional 1% in Year 2.

Question 4

A client is comparing the monthly cash flow of renting an apartment for $2,800 versus buying a home. The total estimated monthly housing payment (PITI) for the home is $3,400. Of this payment, $2,200 is mortgage interest and $500 is property tax, both of which are deductible. The client is in a 24% marginal federal income tax bracket. What is the after-tax monthly cash flow cost of buying compared to renting?

Accepted Answer

Buying costs $152 more per month than renting.

Answer

Renting costs $252 more per month than buying.

Answer

Buying and renting have the same after-tax monthly cost.

Answer

Buying costs $600 more per month than renting.

Question 5

A client is purchasing a $600,000 home with a 15% down payment. The lender requires Private Mortgage Insurance (PMI) at an annual rate of 0.48% of the loan amount. What is the initial monthly PMI payment, and what is its primary effect on the homeowner's cash flow?

Accepted Answer

The monthly PMI is $204; it increases the homeowner's total monthly housing payment.

Answer

The monthly PMI is $240; it decreases the homeowner's monthly cash outflow.

Answer

The monthly PMI is $2,880; it is paid as a lump sum at closing.

Answer

The monthly PMI is $204; it is a tax-deductible expense that improves cash flow.

Question 6

When analyzing a homeowner's cash flow scenario, which of the following is an example of a non-recurring cash outflow that should be budgeted for but is not part of the regular monthly PITI payment?

Accepted Answer

Replacement of a home's roof every 15-20 years.

Answer

Annual property tax payment.

Answer

Monthly homeowner's association (HOA) dues.

Answer

Monthly private mortgage insurance (PMI) premium.