Ch8 Flashcards
Marketability
the ease of buying/selling an asset at market value
Liquidity
Ability to quickly convert an asset to cash with little or no uncertainty as to its value
Front Ratio
Percentage of gross monthly income allocated to housing expenses (interest, taxes, insurance)
Mortgage lenders typically have a standard of < 28%
Discuss how to size a clients emergency fund and how to invest
3-6 months of living or take-home expenses
based on age, health, job outlook, and financial situation
What are the key types of household debt
mortage, revolving credit, car loans, and credit card debt
How does credit score differ from credit report
credit report is the mathematical model to represent credit score.
credit score is a ranking on the likelihood that a borrower will stay current
How much do debt ratios influence lending decisions
debt ratios address borrowers ability to handle debt
How would you help a client to decide if leasing a vehicle is a good decision
compare net cost of leasing vs net cost of owning over planned ownership horizon
Compare Home equity loan and HOLOC
HELOC: Variable rate with interest payments in the early years and and amortized payments at some point in the terms
Home equity loan: fixed rate, self-amortizing, loan with fixed payments
Calculate max amount a consumer can borrow under a home equity loan or HELOC
Appraisal X .8(Balance)
Chapter 7 Bankruptcy
“Reset”
Liquidation of assets
forms a bankruptcy estate, then the estate pays the debtors
discharge occurs.
Chapter 13 Bankruptcy
“Restructure”
Court decides a 36 month payment plan
then discharge occurs
Chapter 11 Bankruptcy
for small business owners seeking continued operation
request to debtors. 2/3 must comply to terms, then discharge
Types of debt
Secured debt: backed by assets
Unsecured debt: not backed by assets
Debt Service Ratio
Total annual loan payments/ net income
percentage of income required to cover existing loan
