Prelim 2 Flashcards
True/False: Owning a home is better than renting because home ownership builds equity and you end up making a profit.
False
What are the 5 Cs of credit?
- Capacity
- Capital
- Collateral
- Character
- Conditions
What does capacity in the 5 Cs of Credit?
- Are you able to repay the loan?
- Do you have sufficient income?
- How big are your current payment obligations?
What is capital in the 5 Cs of Credit?
- Do you have assets that could be liquidated to pay the loan, if necessary?
- How much are your assets worth?
- How much are your total debts?
- What is your net worth?
What is collateral in the 5 Cs of Credit?
- Are you pledging security for the loan?
- Are you pledging any assets as security for the loan?
- Do you have money in checking, savings and investment accounts?
What is character in the 5 Cs of Credit?
- Are you the type of person who takes debt responsibility seriously?
- Have you used credit before and do you have a clean credit record?
- Have you ever filed for bankruptcy?
- How long have you lived at the same address and worked for your current employer?
What does condition in the 5 Cs of Credit?
- Any unique circumstances, economic conditions to consider?
- Do you have a secure job?
- Is the company your work for in good financial shape?
- Are general economic conditions favorable?
What are the rules of effective cash management?
- Balance your checkbook regularly
- Pay your bills on time
- Pay yourself first
- Evaluate alternative accounts and providers
What are common mistakes in managing money?
- Overspending from impulse buying and using credit cards
- Not having enough liquid assets (cash and checking account) to pay current bills
- Using savings or borrowing to pay for current expenses
- Failing to put unneeded funds in an interest-earning savings account or investment plan
What are some types of financial services?
- Savings
- Time deposits in savings, CD
- Payment Services
- Checking accounts are called demand deposits
- Automatic payments
- Borrowing for the short-term and long-term
- Other financial services
- Insurance, investment real estate purchases, tax assistance, and financial planning are additional services you may use
What is an asset management account?
- Also called a cash management account
- Offered by brokers and financial institutions
- Provides a complete financial service program for a single fee, benefits include:
- Tracking money in one location
- Consolidated statements
- Lower fees due to higher balance aggregation
- Ease for tax reporting
- Ease for communicating financial issues to family
What is true of check-cashing outlets?
True:
- More convenient than banks
- Industry is experiencing rapid growth
- Largely unregulated market
- The fees charged are more than banks
- Charge 1-20% of the face value of a check: 2-3% is average
Financial Institution interest rate types?
- Prime Rate
- Discount Rate
- Fed Funds Rate
- Certificate of Deposit Rate
- Treasury Bill Rate
- Treasury Bond Rate
What is the prime rate?
Rate that large banks charge their business customers
What is the discount rate?
•Rate that Federal Reserve charges member banks for short-term borrowing
What is a Fed Funds Rate?
Rate that large banks charge each other for very short-term borrowing
How much in cash should I keep in an emergency fund?
- It depends on your circumstances
- 3 to 6 months of living expenses (traditional answer)
- 1 - 3 years of living expenses (if you are approaching retirement or in retirement)
What does credit report data include?
- Personal Data
- Credit History
- Inquiry
- Public Records
- Personal Statement
What is the current average credit card APR (Annual Percentage Rate)?
15.42%
(if your rate is more than this and you have good credit than your rate is too high)
Does federal law allow you to access your credit score every 12 months?
No, Federal law does not entitle you to free access to your actual credit score (pay for it)
What is the most expensive interest rate calculation method for the borrower?
Bank Discount Interest Method
What is the nominal rate?
The quotes rate
What is the major reason people are unable to pay their bills?
Excessive use of credit i.e. poor money management
What is the Consumer Credit Counseling Service (CCCS)?
A non-profit which is supported by contributions from banks, merchants, etc.
- Provides education about credit and budgeting
- Provides help with spending plan
- Provides debt counseling services for those with serious financial problems
- Can develop a debt consolidation plan and negotiate reduced interest rates
Service contracts
May not be a wise decision because of costs and exclusions
What is a warranty?
A promise
- Express warranty - in writing
- Implied warranty -assumed by the law
Who tends to pay more for automobiles men or women?
Women tend to pay higher prices for cars because they don’t negotiate as effectively as they should.
Your car may be repossessed if it’s on private property, your driveway or in your garage?
True – as long as it doesn’t involve force, a breach of peace or entry into a dwelling
The 3 most common considered factors when selecting a home are the:
location, location and location
The assessed value of your home is the:
A value used to calculate property taxes
Who does the real estate broker work for?
The sellers
What types of real estate contracts are there?
- Listing Agreements
- Contracts for Sale
- Mortgage Contracts
- Leases
What are some metrics used to evaluate credit?
- Credit Score
- Debt Service Ratio
- Payment Ratio
- Loan/Value Ratio
What are some mortgage types?
- Fixed Rate (“conventional”) Mortgage
- Fixed rate, 15 - 30 years, level payments
- Adjustable Rate Mortgage (ARM)
- Fixed term, fluctuating payments, caps on annual increase and life of loan
- “teaser” rates
- Balloon Mortgage
- Reverse Annuity Mortgage
How do mortgage lenders evaluate the property?
- Appraisal
- Quality of the property and the market
- Environmental issues
