Debt and Cash Flow Management Flashcards
7 cards from real CMPS practice questions. Tap to flip, then mark Knew It or Still Learning โ missed cards come back until you master them.
Read the first 7 Debt and Cash Flow Management flashcards as text
Which debt repayment strategy focuses on paying off the highest-interest debt first while making minimum payments on all others?
Answer: Avalanche method
The avalanche method targets the highest-interest debt first, minimizing total interest paid over time.
A client has a $250,000 mortgage at 7% and $30,000 in credit card debt at 22%. A CMPS would most likely recommend which strategy first?
Answer: Aggressively pay down credit card debt
The 22% credit card interest rate far exceeds the 7% mortgage rate, making credit card payoff the highest-priority move.
What is the primary purpose of a cash flow statement in mortgage planning?
Answer: To identify income and expense patterns that affect loan repayment capacity
A cash flow statement reveals income sources and spending patterns that determine a borrower's true repayment capacity.
A borrower uses a cash-out refinance to pay off $40,000 in student loans. Over 30 years, what financial planning concern should the CMPS raise?
Answer: The borrower may pay significantly more in total interest by extending 10-year debt over 30 years
Extending short-term debt into a 30-year mortgage can dramatically increase total interest paid even at a lower rate.
Which ratio measures a business borrower's ability to service debt from operating income, commonly used in self-employed mortgage analysis?
Answer: Debt service coverage ratio (DSCR)
DSCR divides net operating income by total debt service obligations, indicating whether income covers debt payments.
A CMPS client has significant credit card balances and is considering a 0% balance transfer offer. What is the most important factor to evaluate?
Answer: The promotional period length and the rate that applies after it expires
The post-promotional interest rate and when it applies is the critical risk factor in balance transfer strategies.
Which of the following is considered a 'non-recurring' debt that may be excluded from DTI calculations?
Answer: A personal loan with 6 months remaining
Debts with 10 or fewer months remaining are often excluded from DTI calculations under conventional guidelines.