Cash Flow Management

Question 1

What is back-end ratio?

Answer 1

Also known as total debt ratio, this ratio should not exceed 36% of GROSS monthly income

Question 2

What is a balloon mortgage?

Answer 2

This type of mortgage, the borrower pays a fixed rate for 5-7 years and then is required to pay off in a lump sum. This is usually used during high-interest periods in the hopes that interest rates will go down and the mortgage can be refinanced.

Question 3

What are cash and cash- equivalents?

Answer 3

Assets that can be quickly converted to cash

Question 4

The lessee agrees to pay a monthly fee for a specified period of time

Answer 4

Closed-end lease

Question 5

Another term for a conventional home loan

Answer 5

Conforming loan

Question 6

What is the recommended ratio for consumer debt?

Answer 6

Monthly consumer debt / monthly NET income should not exceed 20%

Question 7

What is the current ratio?

Answer 7

This ratio equals current assets / short-term liabilities. It is used to determine a clients’ ability to service liabilities in an emergency.

Acceptable ratio should be between 1.0 - 2.0

Question 8

What are predicted and reoccurring expenses over time called?

Answer 8

Fixed outflows

Question 9

What is a front-end ratio?

Answer 9

Also known as the housing cost ratio, this ratio should not exceed 28% of GROSS monthly income

Question 10

What is a graduated payment mortgage?

Answer 10

Payments that start low over the first few years and then increase over time - good for those with well known income increases.

Question 11

What are inflows?

Answer 11

Gross salary, rental income, dividend & interest income, tax refund and any other income

Question 12

A loan where a client borrows a single amount of money and repays it at regular intervals is called?

Answer 12

An installment loan

Question 13

What is an interest-only mortgage?

Answer 13

Usually a mortgage for those who wish to keep the mortgage payment small and hope that the market value of the home goes up so that the sale will pay off the principle

Question 14

What are jumbo loans?

Answer 14

These are non-conforming loans which exceed the Fannie Mae and Freddie Mac dollar limit requirements

Question 15

This occurs when the monthly payment is less than the accruing interest which is added to the mortgage balance, increasing the debt

Answer 15

Negative amortization

Question 16

What does the net investment assets to net worth ratio, determine?

Answer 16

Compares value of assets with net worth to determine how well the client is advancing towards capital goals

Question 17

What is an open-end lease?

Answer 17

Lower payments than its closed-end counterpart, the lessee is liable for additional costs at the end if the car is valued less than at the time of the original agreement

Question 18

What are outflows?

Answer 18

Any cash outbound. Divided into savings and investments, fixed and variable

Question 19

What is a personal use asset?

Answer 19

Any asset which includes cars, house, furniture, etc.

Question 20

What is a prime loan?

Answer 20

A mortgage made to a borrower with good credit. Usually 3% higher than the national interest rate

Question 21

What is a tool for predicting cash flow?

Answer 21

A pro forma cash flow

Question 22

What is a reverse amortization/mortgage?

Answer 22

The bank pays the lendee a monthly payment which increases the indebtedness against the home up to the value of the home. When that amount is reached, the lendee dies, or enters a nursing home, the loan becomes due in full, usually fulfilled by selling the home.

Question 23

What is a secured loan?

Answer 23

A loan with collateral

Question 24

A loan paid back within 1 year is called?

Answer 24

A short-term loan

Question 25

What is a single payment (bridge) loan?

Answer 25

A loan for a short period that when due, is paid in full. Used to bridge from one thing to another (like selling and buying a house)

Question 26

What is a subprime loan?

Answer 26

A mortgage to someone with sub-par credit

Question 27

What is a loan without collateral?

Answer 27

An unsecured loan

Question 28

What are variable outflows?

Answer 28

Those expenses in which the client has some degree of control over.