2 year fixed rate mortgage..............?

Question

im 8 months threw a 2 year fixed rate mortgage, im a self employed brick-layer and when i was given the mortgage (130,000 mor - 20,000 deposit) i had a good working year, works slowing up a bit i don think ill earn as much in that year as i did when i was granted the mortgage. typically if i earnt 25,000 when granted mortgage and say only earn 18,000 when two years are up what will happen? i havent missed a payment havea a relatively good credit history score 882 and purchased with a good deposit, do i have to earn the same if not more to show the lender i can repay or will the keep me on interest only ideally id like to start paying some off but if im self employed they may see that as a risk, should i look for a position perhaps as employed rather than self employed even though that may meen earning less but guaranteed money, any advice would be useful please, thanks DAN

Answer 1

doesn;t matter if you paid additional principal in some months - you still must make the minimum payment every month or your credit gets wrecked - instead of paying so much extra - you should be saving money for an emergency fund of 3-6 months worth of expenses to get you thru the slow months - you have to lean to budget yourself as a self employed person - knowing every month won;t be great - when you have an above average month, put the money in the bank for your emergency fund

Answer 2

Brian is correct but you can get a loan to a fixed note. The biggest problem with self employed people is the amount of write offs on their taxes brings their taxable income to a level that they can not meet the capacity to pay debt ratios that are required. Oh by the way if you are in the states your credit score is misstated as the highest is 850 and I for 1 have never seen one higher than 825.

I am a mortgage banker in TN & KY

Answer 3

You are on a 2 year fixed rate mortgage, which means that after 2 years it will be a variable rate! Before then end of the 2 years I would re-apply for a new loan and only get a fixed rate loan. You will pay a little more in interest, but it will be better in the long run. (Honestly, I don't know why ANYONE would apply for a variable loan. Interest rates usually rise on the homeowner, which is why we have an all time high on foreclosed homes right now).

Yes, your earning will effect the rate of the loan, but as long as you make the payments on time, this will be a plus. (An 882 score is outstanding! And I was impressed with my 805.. :P)

OMG!! You have an INTEREST ONLY loan? This type of loan is fine for young professionals just out of college whose income potential will greatly increase over the next several years. It is NOT for regular home buyers like you and me.

Yes. You should start looking for a more steady income job. (Maybe do some work on the side for extra income).

Then near your 2 limit mark, refinance your loan for a 30 year fixed. No variable interest and no interest only loans. The point is to get some equity and to actually own the home at some point.

Did you actually go to a bank and the loan officer recommend this type of loan? When I had mortage companies call me and try to push this on me, I said "NO!" and hung up on them. Then I talked with my banker and they said that those type of loans are not recommended for the general public.  If your banker suggested this type of loan, I would question their morals, and find a new bank!

Good luck.

Answer 4

What happens after the 2 years are up, do you get a balloon payment or does the rate start adjusting?  Either way I'd refinance now if you can just to get your situation set and because rates may be going up.  However with that low an income you may have real problems refinancing (kinda surprised you were even able to get the mortgage as the amount seems to high for your income).

So, try to refinance now if you can.  If your mortgage comes up with a balloon payment you may have trouble when the 2 years are up.  If its an adjustable mortgage your payments will likely go up and with your income dropping you could still have major problems so good to get everything worked out now.

If it turns out you are looking at real problems when this comes up (and maybe you are) you may want to talk to the bank about doing a loan modification now (look up hopenow.com - they help with this).  Problem is its hard to get a loan modification when you are making your payments but you may need one (sometime) as the numbers just don't look that promising when this thing adjusts (or, ugh, balloons).

Answer 5

Unless you are in some type of strange loan program, when the two years are up your mortgage will just start adjusting automatically. They won't reevaluate you financial situation. You will just be expected to pay whether you can or cannot.