CMPS Homeowner Cash Flow Scenarios 3 — Questions and Answers
Question 1: A homeowner receives a $15,000 tax refund and asks their mortgage planner about using it. Which application produces the best guaranteed cash flow improvement?
- Depositing into a savings account at 2%
- Applying as a lump-sum principal curtailment (Correct answer)
- Investing in the stock market
- Purchasing a vehicle outright
Correct answer: Applying as a lump-sum principal curtailment
A lump-sum principal curtailment permanently reduces the loan balance, lowering future interest charges and improving long-term cash flow at the mortgage's interest rate.
Question 2: A homeowner's property taxes increase by $200/month mid-year. If they have an escrow account, what is the most likely immediate cash flow impact?
- Their principal and interest payment decreases
- Their total monthly payment increases at the next escrow analysis (Correct answer)
- Their lender immediately adjusts the payment this month
- Their homeowner's insurance is cancelled
Correct answer: Their total monthly payment increases at the next escrow analysis
Escrow accounts are analyzed annually, so the higher tax obligation triggers a payment adjustment at the next scheduled escrow analysis.
Question 3: What does positive cash flow from a primary residence most commonly refer to in mortgage planning?
- Monthly rental income exceeding mortgage payment
- Net worth exceeding total mortgage debt
- Monthly income minus all housing expenses yielding a surplus (Correct answer)
- Equity growing faster than inflation
Correct answer: Monthly income minus all housing expenses yielding a surplus
Positive cash flow in primary residence planning means monthly take-home income exceeds all housing-related expenses, leaving a monthly surplus.
Question 4: A married couple has a combined gross income of $10,000/month. Their front-end DTI limit is 28%. What is the maximum allowable monthly housing payment?
- $2,000
- $2,400
- $2,800 (Correct answer)
- $3,200
Correct answer: $2,800
$10,000 × 28% = $2,800 maximum monthly housing payment under standard front-end DTI guidelines.
Question 5: A homeowner in the 22% federal tax bracket pays $18,000 in mortgage interest annually. Assuming they itemize, what is the after-tax cost of that interest?
- $10,800
- $12,960
- $14,040 (Correct answer)
- $18,000
Correct answer: $14,040
$18,000 × (1 - 0.22) = $14,040 after-tax cost of mortgage interest when itemizing deductions.
Question 6: A homeowner is evaluating a cash-out refinance to fund home improvements. Which factor most directly determines whether the refinance improves monthly cash flow?
- The home's appraised value
- Whether the new payment is lower than the existing payment (Correct answer)
- The contractor's payment schedule
- The loan-to-value ratio after refinance
Correct answer: Whether the new payment is lower than the existing payment
Cash flow is directly impacted by whether the new all-in monthly payment is less than the current payment, since that determines whether monthly outflows increase or decrease.
Question 7: A homeowner uses a debt consolidation refinance to roll $30,000 in credit card debt into their mortgage. Their mortgage payment increases by $180/month but they eliminate $900/month in credit card minimums. What is their net monthly cash flow improvement?
- $180
- $540
- $720 (Correct answer)
- $900
Correct answer: $720
Net cash flow improvement = $900 eliminated minus $180 increase = $720/month improvement.
CMPS Homeowner Cash Flow Scenarios 3
A homeowner receives a $15,000 tax refund and asks their mortgage planner about using it.
Which application produces the best guaranteed cash flow improvement?