need opinion (loan officer, 2011, credit report, rate)

[NewBeginnings12]

I bought my home september 05'. I have an 80/20 interest only, 7 year ARM. I am in the commission business and my commissions have gone down about 50% due to the bad economy.

First loan is at 5.75% and the second is 8%

My ARM does not adjust until 2012. However, I am very concerned about my interest only loan. Especially because of this housing economy.

Should I refinance? Or should I should I just make extra payments to the principal?

The other problem is, my credit score was a 720 when I bought the house and is now a 648 (due to debt to income ratio, and my loss in salary).

What should I do? This whole mortgage/housing crisis is freaking me out!!!!!

[TimtheGuy]

You have excellent rates. There would be no value in refinancing.

Why concerned with interest only? You can always pay principal when you get large commission checks and have the benefit of I/O payments when there is less/little commission.

[TimtheGuy]

...and 2012 is a long way off. You don't even know if the rates will adjust up by that time. Contrary to popular beleif ARM loans don't just automatically go up when the adjusment period hits. It will dependent on the specific index rate at that time.

[t.e.sumner]

Tim's right. Don't freak out unless you can't make payments. As a fellow Realtor, I feel your pain, but unless you bought high, the market will eventually come back to where you bought and then give you some equity.
For your credit score, you will want to stay away from paying late on your mortgages and secondly from paying late on your cards. I say this as a loan officer. While your debt/income plays a part, your payment history dominates and you should act accordingly.
Paying down principal when you can is a good idea, provided your expected future flow of income is not likely to decrease. Keeping a reserve for bad times will help you. In other words, don't pay every available cent into the principal, as you may need it later to pay the interest. Worst times occasionally get worse!
When you can see light at the end of tunnel and a secure flow of income, you can apply the accumulated reserve to principal (within reason). Some financial advisors recommend 2 to 6 months of all payments be held in reserve -- not just mortgage payments. Try not to pay off so much that you're left with less than 2 months of payments on obligations.

[Mugsy]

I also have an ARM at 4.5%.
It will reset in 6/2011.
I am saving money to savings and paying off the last of some consumer/auto debt and adding a little to principal every month.
If I had a 2nd at the rate you do, I would pay extra to that.
I have never had a 2nd, so I am not sure how that works on prepaying it.

[Karla with a K]

Originally Posted by NewBeginnings12

The other problem is, my credit score was a 720 when I bought the house and is now a 648 (due to debt to income ratio, and my loss in salary).

newbeginnings
You need to review your credit report to see what caused the score to drop.
The credit bureau's do not have your income so they can not reduce your score based on that.
Could you of meant the ratio of debt to credit limits ?
If your debt is 50% or more of your available credit limits this could cause a score drop.

[Humanoid]

This whole mortgage/housing crisis is freaking me out!!!!!

It should be, lenders were doing things like 80/20 IO loans.

Maybe you should sell?

[TimtheGuy]

Originally Posted by Humanoid

It should be, lenders were doing things like 80/20 IO loans.

Maybe you should sell?

No it shouldn't....and why????

[renriq02]

The other issue is that most states are making laws where you wont be allowed to do stated income!

Realtors have fluctuating income...and the Underwriters will ask for 2yrs tax returns AND P&L statement(Profit/Loss or Current Financial statement)

If you show 50% loss then it would be hard for you to refinance..and to purchase a new home.

I would sit tight as you have a good rate..on both mortgages.
Since you only make commissions.....I would build a 3-4month reserver BEFORE paying down your mortgage

[Humanoid]

No it shouldn't....and why????

Allowing people to do 100% financing is a stupid idea, and the lenders are going to get burnt bad for it. But 100% financing with an IO only loan that is not fixed...ugh. IO loans are a bad idea for the general public too, but can make sense in some cases (such as the OP being on commissions).

As to selling. The OP will most likely have negative equity soon (If not already), that isn't a fun situation.