Cash Flow Management Flashcards
What is back-end ratio?
Also known as total debt ratio, this ratio should not exceed 36% of GROSS monthly income
What is a balloon mortgage?
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.
What are cash and cash- equivalents?
Assets that can be quickly converted to cash
The lessee agrees to pay a monthly fee for a specified period of time
Closed-end lease
Another term for a conventional home loan
Conforming loan
What is the recommended ratio for consumer debt?
Monthly consumer debt / monthly NET income should not exceed 20%
What is the current ratio?
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
What are predicted and reoccurring expenses over time called?
Fixed outflows
What is a front-end ratio?
Also known as the housing cost ratio, this ratio should not exceed 28% of GROSS monthly income
What is a graduated payment mortgage?
Payments that start low over the first few years and then increase over time - good for those with well known income increases.
What are inflows?
Gross salary, rental income, dividend & interest income, tax refund and any other income
A loan where a client borrows a single amount of money and repays it at regular intervals is called?
An installment loan
What is an interest-only mortgage?
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
What are jumbo loans?
These are non-conforming loans which exceed the Fannie Mae and Freddie Mac dollar limit requirements
This occurs when the monthly payment is less than the accruing interest which is added to the mortgage balance, increasing the debt
Negative amortization
What does the net investment assets to net worth ratio, determine?
Compares value of assets with net worth to determine how well the client is advancing towards capital goals
What is an open-end lease?
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
What are outflows?
Any cash outbound. Divided into savings and investments, fixed and variable
What is a personal use asset?
Any asset which includes cars, house, furniture, etc.
What is a prime loan?
A mortgage made to a borrower with good credit. Usually 3% higher than the national interest rate
What is a tool for predicting cash flow?
A pro forma cash flow
What is a reverse amortization/mortgage?
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.
What is a secured loan?
A loan with collateral
A loan paid back within 1 year is called?
A short-term loan
What is a single payment (bridge) loan?
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)
What is a subprime loan?
A mortgage to someone with sub-par credit
What is a loan without collateral?
An unsecured loan
What are variable outflows?
Those expenses in which the client has some degree of control over.
