Without protection against falling equity values, many home owners now own less than 20 percent of the equity in their homes, which requires getting mortgage insurance.
But the cost of mortgage insurance “would cancel out the savings from the lower mortgage rate,” he notes, adding that the market for home equity or piggy-back loans has virtually dried up.
Those that can afford to refinance have probably already done so, when rates dipped below 6% in May or January.
Still the Mortgage Bankers Association Refinancing Index rose 15.4 percent in the week ending September 5.
Still, Larson says now is the time to “at least get on the phone with your lender and find out what the costs are because those costs have gone done.”
At the same time he does not expect much of spike in the housing market activity until rates, which are roughly in line with the average over the last six years, drop even more.
”If we get 30 year fixed mortgages rates down to the low fives then you are talking about a much bigger refinance wave and much cheaper home financing, but it’s an open question whether we will get there,” said Larson.
Mortgage rates could come down in two main ways. In the short-term the government could push down yields on mortgage-backed securities by buying more, an action Washington said it would reserve for itself when it announced the Fannie and Freddie takeover decision.
The other way mortgage rates could decline is if the economy weakens but then fewer people will be in a position to buy.
“We would need to see more horsepower out of this move or an even bigger decline…for people with fixed mortgages to get much out of the bargain - and that could happen if the economic really slumps, ” said Larson.