Turmoil Overseas Is Causing Mortgage Rates to Drop. Should You Lock in a Loan Now?

Mortgage rates have dipped a little. But lower rates may not last.

For many months, potential home buyers have bemoaned the fact that property values are just too expensive. They're not wrong. CoreLogic recently reported that home price gains rose 19.1% in January 2022 compared to January 2021. And that means a lot of buyers are being forced to stretch their budgets to make homeownership a possibility.

Now to be clear, home prices have been high for quite some time. But last year, buyers were able to help offset those prices via lower mortgage rates.

During the first two months of 2022, mortgage rates rose substantially. While they're still pretty competitive from a historical standpoint, they're much higher than they were at any point in 2021.

But this week, mortgage rates have dropped a bit -- a situation industry experts are attributing to the conflict between Russia and Ukraine. If you're trying to buy a home, you may be wondering if it pays to lock in a mortgage right now.

The answer? It depends.

Don't rush that mortgage decision

You may be eager to eke out as much savings on a mortgage as possible. So it makes sense you'd want to capitalize on rates when they're lower than they've been in weeks. But rushing into the mortgage application could actually cause you to lose out on potential savings.

Imagine you're eager to take advantage of a dip in mortgage rates, so you go out, apply for a mortgage, and accept the first offer you get back. In doing so, you might miss out on a better offer from another mortgage lender.

That's why it's really important to shop around when seeking out a mortgage. Chances are, it's the largest sum of money you'll borrow in your lifetime, so it's important to secure as low an interest rate on that loan as possible.

Will mortgage rates shoot back up?

Mortgage rates tend to follow the U.S. 10-year Treasury bond yield, which fell this week as a result of conflict overseas. Once things stabilize, that yield could rise, and mortgage rates could follow suit.

What’s more, the Federal Reserve has indicated that it plans to raise its short-term borrowing rates this year. This won't impact mortgage rates directly, since the Fed doesn't actually set those (or any consumer interest rates, for that matter). But the Fed's actions could have an indirect impact.

There is a risk in putting off a mortgage signing. But ultimately, there may be a greater risk in not shopping around, so even if mortgage rates creep back up, it's still worth taking the time to research your borrowing options.

Remember, mortgage lenders don't just differ in terms of the rates they have available. They can also differ in the amount of closing costs they charge to finalize a home loan. Comparing your borrowing options is a move worth making, even if you're tempted to make a quick decision due to the current state of the mortgage market.