Housing/Tenancy, Property, Debt, Loans, Bankruptcy Flashcards
Housing/Tenancy, Property, Debt, Loans, and bankruptcy
What is “Consumer Debt?”
Credit Card Debt
One of the most expensive forms of debt, especially if used on fixed expenses.
What is “Negative Leverage?”
Paying more interest on debts than you are earning in interest from investments
The 4 components of housing costs
PITI
1. Principal
2. Interest
3. Taxes
4. Insurance
Explain how the “Reverse Mortgage” works
- Lender loans homeowner cash via the equity of the home
- Loan is repaid when homeowner dies/moves
(This is usually for old people)
Tenancy in Common
2 or more related or unrelated persons
Each person holds an undivided but not necessarily equal interest in the entire property
Joint Tenancy with right of survivorship (JTWROS)
2 or more related or unrelated persons
Each person holds an undivided AND equal interest in whole property
e.g. if Tenant A dies, Tenant B holds property
Community Property
Married individuals own an equal undivided interest in ALL property accumulated during marriage (income included)
Not always automatic right to survivorship
Tenancy by Entirety
Spouse only
Two tenants own an undivided interest in the whole asset, but ownership can’t be severed without the consent of the other spouse
e.g. If Tenant A dies, Tenant B holds property
Chapter 7 Bankruptcy
Total liquidation of individual’s non-exempt assets and liabilities
or
business’s assets and liabilities
Chapter 11 Bankruptcy
Businesses only
Debt is restructured/reorganized so debtor can keep running business
Chapter 13 Bankruptcy
Individual only
Keeps property
Debt is adjusted via payment plan extension/partial discharge
What does an individual have to do before filing for bankruptcy?
They have to take an approved credit counseling class 6 months prior to filing
What does “The Means Test” do?
It calculates an individual’s monthly income minus certain expenses to determine if they get Section 7 or Section 13 Bankruptcy
What is the “Interest Factor?”
The annual percentage rate used to determine the lease payment
How does leasing work? (3 step process)
- Residual value is subtracted from the price of an item.
- The lessee pays the lessor (lender) the difference with interest over a period of time.
- Lessee returns item.
What is the “Teaser Rate?”
Explain how the “Balloon Payment” works.
The final payment at the end of the term is substantially larger than the prior payments.
Explain how the “Teaser Rate” works.
You get a low rate for the first few payments that jumps to a higher rate after a short period.
What is a “Prime Rate?”
The rate that banks generally charge their most creditworthy clients
What is the quality of debt assessment based on?
The relationship between term of debt AND useful life of the asset
What is the “Capitalized Cost?”
Essentially the total purchase price of an asset
What does “Residual Value” mean?
It’s the value remaining in an asset at the end of the lease period
What is “Secured Debt?”
Debt that has collateral to secure payment:
-Mortgages
-Auto Loans
-Margin Accounts
-etc.
What is “Unsecured Debt?”
No collateral; just borrower’s “integrity”
-Credit Cards
-Signature Loans
3 main solutions to debt
- Avoid additional non-essential credit purchases
- Pay off highest interest obligations first
- Liquidate lower interest investments and pay off higher interest loans
