Mortgage Rates Soar Due to Iran War. Here’s What You Should Do.
As the war in Iran continues, loan rates are one risk.
The housing market got a little boost earlier this year when the 30-year fixed-rate mortgage fell below 6% for the first time in years. But within a month, the popular product stood at 6.38%. In late March there was a major one-week surge from April 2025, when the White House made its first shocking and terrifying tax announcements.
These aren’t the highest rates in recent years, but with home prices still elevated and many Americans struggling to afford higher prices on everything from milk to gas, borrowers need all the help they can get. That’s why adjustable-rate mortgages (ARMs) are getting another look.
ARMs offer borrowers a fixed amount of time for presentation, say five or seven years. After that time, they are adjustable – usually floating up or down, usually by tracking an index like the SOFR, which is one measure of how much banks pay to borrow.
A 30-year fixed-rate mortgage is “reliable,” said Scott Bridges, chief consumer product officer at Pennymac, one of the nation’s largest lenders. On the other hand, ARMs can be “strategic,” Bridges told USA TODAY.
“They give you a longer window to have a lower rate, a lower payment, and the ability to refinance your fixed-rate loan when rates drop.”
Using the most recent rates available for the week of March 23, Hannah Jones, senior economist at Realtor.com calculated the savings of using a 5/1 variable rate mortgage at about $185 per month for an average-priced home with a 10% down payment.
And a recent analysis from Cotality, a data provider, noted that ARMs are enjoying a resurgence “in high-cost markets where the affordability gap is the widest. In California, ARMs will account for more than 31% of loan originations by 2025, and a similar surge is occurring in the District of Columbia (~28%) and Massachusetts.”
In those areas, Cotality said, ARMs are “an important option for those looking to enter the market or upgrade to a larger home.”
Nationwide, ARMs accounted for just over 8% of all mortgage applications in late March, data from the Mortgage Bankers Association show.
ARMs may have gotten a bad rap during the subprime crisis, when mortgage lenders offered — and borrowers happily took — all kinds of foreign loan products. And in the post-bust years, interest rates were generally so low that they didn’t offer much benefit compared to a 30-year fixed-rate mortgage, which didn’t feel very safe.
As Realtor.com’s Jones explained in an email, “Buyers who stay in their homes longer face the risk of their rate going up, which can wipe out those early savings and add significant volatility to their monthly budget at a time when housing costs are already stretching household finances.”
It is also important to note that ARM terms can vary greatly. For example, some adjust both up and down along with other values, but others only adjust up. On the other hand, some cap the maximum interest rate you can pay.
What is a Mortgage Rate Buydown?
Many real estate professionals prefer mortgages over variable rate mortgages. A down payment allows the borrower to pay a pre-determined amount at a lower rate for the first few years of the loan.
Dave Nichols, a loan officer with NBKC Bank in Kansas City, explains the 2-1 purchase, which he sees often, this way: if a 30-year fixed-rate mortgage costs 6.50%, the borrower will pay 4.50% in the first year and 5.50% in the second year, before refinancing 50% for 6 years.
Buydowns have several advantages, Nichols said. Among them: they offer huge savings up front. Also, buying down can be a smart way to use credits from the dealer. Those deals are usually well worth the savings in the first two years of the purchase period.
For a home worth about $400,000, the average monthly payment might be about $2,000, Nichols said. But the first year of a 2-1 mortgage can bring that to $1,600 less.
Trusted Mortgage Experts Can Help
One of the smartest steps any borrower can take would be to work with an advisor you trust.
Prices will likely remain high – and volatile – as long as the conflicts in the Middle East continue. But Nichols points out that lenders can also help borrowers understand the nuances involved in planning a road rehabilitation.
“Find someone who takes the time to talk to you about your situation,” he said.
This article first appeared in USA TODAY: Mortgage rates rise because of Iran war. Here’s what you have to do.
Reporting by Andrea Riquier, USA TODAY / USA TODAY
USA TODAY Network via Reuters Connect
