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The potential for renewed hostilities in Iran has mortgage rates headed higher. On one side, we’ve got the President’s plan to use the U.S. military to guide commercial ships through the Strait of Hormuz. On the other, we have Iran’s top military brass vowing to attack any foreign military that enters those waters. As of the time I’m writing this, it’s not clear how it’s going.
The average interest rate on a 30-year, fixed-rate mortgage rose to 6.27% APR, according to rates provided to BW by Zillow. This is 17 basis points higher than Friday and 14 basis points higher than a week ago. (See our chart below for more specifics.) A basis point is one one-hundredth of a percentage point.
That’s the latest. For more on why the Iran war’s been so influential for mortgage rates, as well as where rates might go next, keep reading below the chart.
Average mortgage rates, last 30 days
📉 When will mortgage rates drop?
Mortgage rates are constantly changing, since a major part of how rates are set depends on reactions to new inflation reports, job numbers, Fed meetings, global news … you name it. For example, even tiny changes in the bond market can shift mortgage pricing.
The Iran war has been a key driver for mortgage rates as investors react to geopolitical uncertainty. How does an overseas conflict affect what you pay to get a home loan? Here’s the shortest version I can manage:
⛔ From day one of the war, there have been concerns about rising fuel prices due to Iran’s importance both as an oil producer and geographically, bordering the critical Strait of Hormuz. The global oil supply is getting throttled, raising energy prices and contributing to inflation.
📈 The stock market might be doing great, but inflation fears have been shaking up the bond market. Bonds offer investors a set return known as the yield. Less demand for bonds pushes their prices down, which pushes up bonds’ yields — relative to the bond’s price, that preset yield is now higher.
🏠 Mortgage rates are benchmarked to one specific bond, the 10-year Treasury note. The yield on the 10Y T rose sharply throughout March and only eased up a bit in April, and we’ve likewise seen the average 30-year fixed rate mortgage APR remain firmly above 6%.
Lately, markets have been showing some fatigue when it comes to reacting to news coming out of the Middle East. Early on in the conflict, it felt like every update was a market mover. Now, it takes Big News (yes, with caps) to shake things up. That’s brought us more stable mortgage rates, even if they’re higher than one might like.
Meanwhile at home, the Federal Reserve has the tough job of trying to keep the U.S. economy on an even keel through all this turmoil. The Fed doesn’t set mortgage rates, but its level of influence over U.S. markets means that mortgage rates’ moves often anticipate the Fed’s actions.
At its meeting last week, the Fed kept its benchmark interest rate the same in an effort to steady the ship. That was the third consecutive meeting with no change. Eventually, the Fed will either raise the federal funds rate to curb inflation or cut it to support the job market — with mortgage rates likely heading higher in the former scenario or lower in the latter.
Inflation was already accelerating before the Iran war, and last week’s data added to that pressure. March’s Personal Consumption Expenditures Index, the Fed’s preferred gauge, showed core inflation (which strips out volatile food and fuel prices) at 3.2%. That’s the highest that’s been since November 2023, underscoring concerns that war-driven increases in energy costs are pushing up prices across the board.
This week, we’re getting two big data drops on employment that could tip the scales: the Job Openings and Labor Turnover Survey on Tuesday, and the Employment Situation Summary, better known as the jobs report, on Friday. If these show signs of a cooling job market, that could influence how the Fed balances its priorities — and how markets react.
Data that shows a weaker labor market could put more pressure on the Fed to cut rates, and we’d likely see mortgage rates ease up. But those lower rates could come with serious tradeoffs, since a softer job market can signal a more fragile economy.
Refinancing might make sense if today’s rates are at least 0.5 to 0.75 of a percentage point lower than your current rate (and if you plan to stay in your home long enough to break even on closing costs).
With rates where they are right now, you could start considering a refi if your current rate is around 6.77% or higher.
Also consider your goals: Are you trying to lower your monthly payment, shorten your loan term or turn home equity into cash? For example, you might be more comfortable with paying a higher rate for a cash-out refinancethan you would for a rate-and-term refinance, so long as the overall costs are lower than if you kept your original mortgage and added a HELOC or home equity loan.
If you’re interested in securing a lower rate, you can utilize BW’s refinance calculator to estimate potential savings and determine the time it would take to break even on refinancing costs.
🏡 Is it time to start looking for a new home?
There isn’t a one-size-fits-all answer to when you should start searching for a home. What’s important is whether you can comfortably afford a mortgage at current rates.
If the answer is yes, try not to worry too much about potentially missing out on lower rates in the future; refinancing is always an option. Focus on getting preapproved, comparing lender offers, and determining a monthly payment that fits your budget.
BW’s affordability calculator can assist you in estimating your monthly payment. If buying a new home isn’t feasible right now, there are steps you can take to strengthen your buyer profile. Use this time to pay off existing debts and increase your down payment savings. Not only will this free up more cash for future mortgage payments, but it can also help you secure a better interest rate when you’re ready to purchase.
🔒 Should I lock in my rate?
If you’re satisfied with a quote you’ve received, it’s advisable to consider locking in your mortgage rate, especially if your lender offers a float-down option. A float-down feature allows you to take advantage of a lower rate if the market changes during your rate lock period.
Rate locks shield you from rate increases while your loan is being processed, providing peace of mind in the midst of market fluctuations.
🤓 Nerdy Tip: Mortgage rates can fluctuate daily, even hourly. If you’re content with the offer you have, it’s okay to make a commitment.
🧐 Why is the rate I saw online different from the quote I received?
The advertised rate is typically a sample rate for borrowers with excellent credit, substantial down payments, and who are willing to pay mortgage points. This may not align with every buyer’s specific situation.
In addition to external market factors, your personalized quote is influenced by:
Even individuals with similar credit scores can receive different rates based on their overall financial profiles.
👀 Can I secure the rate I saw today if I apply now?
Possibly — but even customized rate quotes can fluctuate until you lock them in. Lenders adjust pricing multiple times a day in response to market changes.
