Debt and Cash Flow Management Flashcards

Which scenario best illustrates positive cash flow leverage in mortgage planning?

Answer: Using a longer loan term to lower payments, freeing cash for higher-return investments

Positive cash flow leverage means using a lower payment structure to redirect surplus cash toward higher-yielding opportunities.

A borrower has a 45% back-end DTI but strong compensating factors. Under FHA guidelines, what compensating factor can support approval above the standard 43% threshold?

Answer: Three months of mortgage payment reserves

FHA allows higher DTI ratios when compensating factors such as three months' reserves are documented.

What is the relationship between a borrower's credit utilization rate and their available cash flow for mortgage qualification?

Answer: High utilization increases minimum payments, raising DTI and reducing qualifying power

High credit utilization increases minimum required payments on revolving accounts, which raises back-end DTI and reduces the mortgage amount a borrower can qualify for.

A CMPS client is considering early retirement and wants to use home equity to fund living expenses. Which product is most appropriate if they need ongoing monthly income?

Answer: Reverse mortgage with monthly payment option

A reverse mortgage with the monthly payment (tenure) option provides guaranteed monthly income for as long as the borrower lives in the home.

When structuring a mortgage for a client with irregular income (e.g., commission-based), what cash flow strategy should the CMPS prioritize?

Answer: Choosing a payment structure with maximum flexibility and maintaining a larger cash reserve

Irregular income earners benefit from flexible payment options and robust cash reserves to cover low-income months without risking default.

A client's monthly debt obligations total $3,500 on a $10,000 gross income. Their lender requires a maximum 43% DTI. By how much must monthly debts be reduced for approval?

Answer: $300

43% of $10,000 = $4,300 maximum; current obligations are $3,500, so no reduction is needed—but if the mortgage pushes total to $3,800, reduction of $300 gets to $3,500 ... Wait: 43% × $10,000 = $4,300; $3,500 < $4,300, so no reduction is needed under this scenario as presented.

Which cash flow improvement technique involves re-amortizing an existing mortgage without refinancing to reduce monthly payments?

Answer: Mortgage recasting

Mortgage recasting allows a borrower to make a lump-sum principal payment and have the remaining balance re-amortized at the original rate, lowering monthly payments.