CMPS Debt and Cash Flow Management 3

Question 1

Which debt repayment strategy focuses on paying off the highest-interest debt first while making minimum payments on all others?

Accepted Answer

Avalanche method

Answer

Snowball method

Answer

Debt consolidation

Answer

Balance transfer method

Question 2

A client has a $250,000 mortgage at 7% and $30,000 in credit card debt at 22%. A CMPS would most likely recommend which strategy first?

Accepted Answer

Aggressively pay down credit card debt

Answer

Refinance the mortgage to a 15-year term

Answer

Make extra principal payments on the mortgage

Answer

Open a HELOC to fund retirement accounts

Question 3

What is the primary purpose of a cash flow statement in mortgage planning?

Accepted Answer

To identify income and expense patterns that affect loan repayment capacity

Answer

To document a borrower's net worth

Answer

To calculate the loan-to-value ratio

Answer

To verify employment history

Question 4

A borrower uses a cash-out refinance to pay off $40,000 in student loans. Over 30 years, what financial planning concern should the CMPS raise?

Accepted Answer

The borrower may pay significantly more in total interest by extending 10-year debt over 30 years

Answer

Student loans are tax-deductible, so paying them off is counterproductive

Answer

The borrower will lose access to income-driven repayment plans only if they are in default

Answer

Student loan debt cannot legally be refinanced into a mortgage

Question 5

Which ratio measures a business borrower's ability to service debt from operating income, commonly used in self-employed mortgage analysis?

Accepted Answer

Debt service coverage ratio (DSCR)

Answer

Loan-to-value ratio

Answer

Liquidity ratio

Answer

Current ratio

Question 6

A CMPS client has significant credit card balances and is considering a 0% balance transfer offer. What is the most important factor to evaluate?

Accepted Answer

The promotional period length and the rate that applies after it expires

Answer

The cardholder's credit score impact from a new inquiry

Answer

Whether the card is issued by a bank or credit union

Answer

The minimum payment amount during the promotional period

Question 7

Which of the following is considered a 'non-recurring' debt that may be excluded from DTI calculations?

Accepted Answer

A personal loan with 6 months remaining

Answer

A car lease with 18 months remaining

Answer

A student loan in deferment

Answer

Child support obligations