Financing Strategies

Question 1

Why should someone consider refinancing his/her mortgage?

Answer 1

Lowering interest rate and/or extending term, thereby reducing payment and freeing up cash flow to redirect toward tax-advantaged savings or higher interest debt

Lowering rate with same or lesser term to accelerate buildup of equity in the property

Question 2

Name benefits of financial leveraging.

Answer 2

Convenience in purchasing and consumer protections
Acquisition of a car or home
Development of human capital
Creation of financial capital/investing
Starting or growing a business
Pursuit of desired lifestyle and opportunities

Question 3

Define “secured debt.”

Answer 3

Property (collateral) that can be seized for nonpayment

Question 4

Define “unsecured debt.”

Answer 4

No collateral

Question 5

What does PITI stand for?

Answer 5

Principal, interest, taxes, insurance

Question 6

When a term of mortgage is increased, what is the result?

Answer 6

Decreases payment (increases discretionary cash flow)
Increases total interest for mortgage loan

Question 7

“Leveraging” is another term for what?

Answer 7

Debt

Question 8

What is the formula to determine home equity?

Answer 8

Home Equity = FMV of Property − Mortgage Balance

Question 9

Within a financial stability framework, debt management for a financially STABLE individual means they should do what?

Answer 9

Prioritize paying high-interest debt

Question 10

Within a financial stability framework, debt management for a financially UNSTABLE individual means they should do what?

Answer 10

Prioritize paying secured over unsecured debt

Question 11

HELOC is short for what?

Answer 11

Home equity line of credit