The war in Iran is causing rate volatility. Here's how to lock in low borrowing costs

Just as mortgage rates fell below 6% at the end of February — a drop homebuyers anxiously awaited for years — the Iran war pushed them back up.

Mortgage rates and the 10-year Treasury yield moved in similar patterns with oil prices since the start of the war. In April, the price of oil per gallon rose to its highest level since 2022, and mortgage rates fluctuated between 6.11% and 6.46% while the yield on 10-year Treasurys climbed to one of its highest levels in years. Here is a look at rates on a week-to-week basis since the war began.

The good news is that, despite the conflict, rates are likely to remain much lower than they were a year ago, when the average was 6.63%, said two experts who spoke with CNBC Select in March. Still, homebuyers hoping to enter the market in the coming months will likely need to be strategic to get a rate near the 5.98% seen in late February.

Before we get into strategies for locking in low borrowing costs, we outline why mortgage rates tend to move with oil prices.

Historically, military conflict in the Middle East has gone hand in hand with transportation difficulties among oil exporters. Prices customarily rise across the economy, as oil is essential for manufacturing and transporting goods, Realtor.com economist Joel Berner told CNBC Select. Investors, in turn, demand higher returns to compensate for heightened risk in an inflationary environment, he added. 

For historical context, the highest per-barrel price was $147.27 in July 2008, when the U.S.-Iraq war created an oil crisis. During that year, mortgage rates rose from a weekly average of 5.91% in April to 6.48% in August, per a CNBC analysis of Freddie Mac's Primary Mortgage Market Survey data.

However, another factor that may mitigate major jumps in mortgage rates: the oil economy has changed significantly since 2008. The U.S. is much less reliant on foreign oil, said Daryl Fairweather, the chief economist at Redfin.

In 2008, the U.S. imported 12.91 million barrels per day, according to the U.S. Energy Information Administration. In 2022, the most recent year for which data are available, the U.S. imported 8.32 million barrels per day, a 35% decrease.

Simultaneously, consumption has gone up: In 2008, daily consumption was at 19.50 million barrels per day and in 2022, it was at 20.28 million barrels per day. 

"We may be able to adapt out of it and stop exporting as much oil and rely more on domestic oil," Fairweather said. "And so the long-term impacts on oil and inflation might not be all that severe, but I think that it's yet to be seen so far." 

There's another component at play, Berner said. 

During periods of economic uncertainty, investors move money into Treasurys and mortgage-backed securities because they are considered safer than equities. This is called the "safe haven effect," and the increased demand typically drives bond prices up and yields down, which in turn pushes mortgage rates lower. 

In the two weeks after the war began on Feb. 28, mortgage rates and the 10-year Treasury yield rose in lockstep with oil prices: The price-per-barrel of oil rose to a high of $119.48 on March 9; the yield on 10-year Treasurys climbed from 3.96% on Feb. 27 to 4.21% on March 11; and average mortgage rates jumped from 5.99% on Feb. 27 to 6.19% on March 11.

Altogether, news about the economy, oil prices, and inflation rates is "going to lead to more volatility in rates, but it's probably going to be like a bunch of swings up and down," Fairweather said. 

The best strategy for mortgages this year is to lock in your rate at the right moment, she said. So, if you see rates reach a low point, call your mortgage lender to secure the rate. If rates spike, wait a bit before cementing your rate. 

"Locking in your rate is the best way to know exactly what your interest rate is going to be, " Fairweather said. "But also, don't worry about it too much, because rates are really hard to predict, and you're never going to get it 100% right." 

In addition to Fairweather's advice, here are three other ways you can get the best possible rate — no matter the economic environment. 

If you're looking for lower-than-average rates, member-owner credit unions are a great place to start.

With many credit unions, you need to work in a certain field, live in a particular area or fall under another specific category to get membership. But FourLeaf Credit Union — which has lower-than-average rates — is available to anyone who can open a savings account and deposit $5. 

Navy Federal, though more restrictive in its membership, is another great option, with some of the lowest rates out there. You must have served in the armed forces, or have had a sibling, spouse, parent or grandparent who served in the armed forces to get membership. 

Online lenders also tend to have lower rates. That's because they don't incur the costs of physical retail locations. Better Mortgage is one such online lender, and offers lower-than-average rates and other perks, like speedy closing and grants for first-time homebuyers.  

You can get a significantly lower rate if you take a few months to work on your credit score. 

According to Experian, the average mortgage rate on a 30-year fixed-rate mortgage for someone with a 620 credit score is 7.17%, while the average mortgage rate on a 30-year fixed-rate mortgage for someone with a 780 credit score or higher is 6.20%.

To improve your credit, focus on making on-time payments, paying down debt and keeping your credit utilization below 10%. 

Additionally, try Experian Boost, which is a free feature that pulls on-time utility and rent payments into your report, which can help increase the number. 

Most 15-year fixed-rate mortgages come with rates lower than 30-year fixed-rate mortgages. For example, for the week ending March 5, the average 30-year fixed rate was 6.98% while the average 15-year rate was just 5.43%.  

Rocket Mortgage and Bank of America— two companies on our top mortgage lenders list — are great options for 15-year mortgages. Each has high customer satisfaction ratings from J.D. Power, along with a diverse array of loan options. 

At CNBC Select, our mission is to deliver high-quality service journalism and comprehensive consumer advice to our readers, enabling them to make informed financial decisions. Every mortgage review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties and we pride ourselves on our journalistic standards and ethics.

At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed two economists: Daryl Fairweather, chief economist for Redfin, who has a Ph.D in economics from the University of Chicago, where she specialized in behavioral economics; and Joel Berner, a senior economist with Realtor.com, who has a master's degree in economics from the University of Texas.

Catch up on CNBC Select's in-depth coverage of credit cards, banking and money and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.