CMPS Homeowner Cash Flow Scenarios 4

Question 1

A homeowner's adjustable-rate mortgage has a 2/2/5 cap structure currently at 3.5%. What is the maximum interest rate they could ever pay?

Accepted Answer

8.5%

Answer

The lifetime cap of 5% is added to the start rate: 3.5% + 5% = 8.5% maximum possible rate.

Question 2

Which scenario best illustrates negative amortization and its cash flow risk to a homeowner?

Accepted Answer

A minimum payment that doesn't cover accrued interest, causing the loan balance to grow

Answer

Negative amortization occurs when the minimum payment is insufficient to cover interest, causing unpaid interest to be added to the principal balance.

Question 3

A homeowner's PITI payment is $2,200/month. Their gross monthly income is $7,000. Which statement about their housing expense ratio is correct?

Accepted Answer

Their front-end DTI is 31.4%, which is acceptable for FHA loans

Answer

$2,200/$7,000 = 31.4%, which exceeds the 28% conventional guideline but is within FHA's 31% front-end limit (FHA allows up to 31%).

Question 4

A homeowner is 10 years into a 30-year mortgage. Why does refinancing into a new 30-year loan potentially harm their long-term cash flow despite lowering the monthly payment?

Accepted Answer

They restart amortization, paying more interest over the extended loan life

Answer

Restarting amortization resets the interest-heavy early payment schedule, often resulting in more total interest paid even at a lower rate.

Question 5

A self-employed homeowner's tax return shows $80,000 net income after $30,000 in business deductions. For mortgage qualification purposes, what income figure do lenders typically use?

Accepted Answer

$95,000 (net plus depreciation add-back)

Answer

Lenders typically add back non-cash deductions like depreciation to net income, so qualifying income is net income plus depreciation add-backs.

(CMPS) Certified Mortgage Planning Specialist Practice Test

(CMPS) Certified Mortgage Planning Specialist Practice Test

CMPS Homeowner Cash Flow Scenarios 4