How the Russian Invasion Impacts U.S. Home Mortgages

Posted by Pam Hill in HousingFebruary 27, 2022(Last Updated July 28, 2022)4 min read
Key Takeaways
  • On February 24, 2021, Russian President Vladimir Putin decided to invade and deploy Russian military troops to Ukraine.
  • The Russian invasion of Ukraine has created a large shakeup in financial markets. One impact of the greater economic uncertainty has been increased investment in bonds and a decrease in rates. 
  • If inflation and supply chain issues continue, these forces will likely overshadow future downturns in mortgage rates.
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Events overseas, which often seem a world away, can feel distressingly close when the fallout lands unceremoniously at your front door—the recent tensions in Ukraine highlight this connectedness to the United States (U.S.) economy in more ways than one. 


Russia’s invasion of Ukraine has caused fatal casualties and left many fearing this could become a full-blown war and the largest conflict in Europe since World War II. The airstrikes battering the Ukrainian capital and surrounding cities have created a large shakeup in financial markets, with cascading ripples in the U.S. housing market.


The Financial Impacts of the War Between Russia and Ukraine


The most visible impact of the conflict has been at the gas pump. Oil prices topped $105 per barrel on February 25, their highest level since 2014. Gas prices in parts of California skyrocketed to $5.00 a gallon. 


Wall Street likewise has been rattled, with a 12% drop in the S&P 500 on February 24 in the aftermath of the initial attacks. However, the mortgage interest rate market has been strangely settled, improving even amidst the uncertainty. 


The 30-year fixed-rate mortgage averaged 3.89% for the week through February 24, down from the prior week to .03 percent (or three basis points, equaling 3/100 of one percentage point or .0003).


The ups and downs of mortgage rates matter less if you have a fixed-rate mortgage. A fixed-rate mortgage is when the interest rate stays the same no matter the economy. If, however, you have a variable rate mortgage also called an adjustable-rate mortgage— ARM, your monthly mortgage amount is adjusted periodically with the rise and fall in rates according to the U.S. government standards.


To put it in context, an increase of .03 percent in your interest rate adds approximately $5 a month, to a $200,000 mortgage. Although $5 may not seem like much, if that amount were invested in the stock market instead of turned over to your mortgage banker, then after 30 years, your $5 monthly investments would have grown, Jack-in-the-beanstalk style, to $6,135.44, assuming a conservative annual return of 7%. 


See-sawing mortgage rates can also affect how large of a mortgage your bank will approve. Below you will see an example of how this can affect your home equity and your home mortgage rate.


Say that your mortgage lender offers you a 30-year, $200,000 mortgage at an interest rate of 3.5% so that you can buy the white picket-fenced beauty you’ve been eying.


At an interest rate of 3.5%, the monthly payment would be $898.09, not counting taxes and insurance. If interest rates suddenly spike to 4%, your monthly mortgage payment would now be $56.74 more, or $954.83 total per month. 


Your lender, formerly all-smiles about a $200,000 mortgage, might now begin to hint at “something lower” to keep your mortgage payment in the $900 range. How much lower? A mortgage of closer to $188,000.


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Home Mortgage Interest Rates and Why They Matter for Homeowners


So clearly, there are several ways that events in Ukraine can affect the mortgage market. Those of us paying a variable rate mortgage or contemplating buying a house are wary of looking this gift horse in the mouth, particularly given how high-interest rates have risen over the past year, from a low of 2.65% in January 2021 to a high of 4.25% on February 26, 2022. 


Image Credit: fizkes /


A 30-year mortgage rate of 2.65% on a $200,000 mortgage gives you a monthly payment of $805.93, excluding taxes and insurance, while a mortgage rate of 4.25% gives you a mortgage payment of $983.88. Or said differently, the 1.6% jump in the 30-year mortgage rate over the past year whittles the buying power of an $805 monthly mortgage payment from $200,000 to a mortgage of approximately $164,000. 


Despite the unfortunate consequences, one still wonders, why do events between Ukraine and Russia affect U.S. mortgage rates? In a word, safety. Mortgage interest rates (typically for mortgages that have a duration of 30 or 15 years) closely follow interest rates on U.S. Treasury bonds.


Treasury bonds are among the safest investments globally because of the low likelihood that the Borrower (the U.S. Treasury) will default on payment. While, for investors, mortgages are not nearly as safe as ‘Treasuries’ (as Treasury bonds are affectionately called), they do share the same appeal in terms of a more-or-less guaranteed return of principal and a steady rate of return. 


As economic uncertainty increases, the demand for investments that seem safe and have a guaranteed return also increases. Treasuries stand chief among these. 


As a result, investors offer to pay a higher price to buy Treasuries and other bond-type products such as mortgages, which as the twin impact of lowering the yield for new mortgages and Treasury bonds (after all, given the high demand, a juicy yield is no longer required to attract investors) and raising the price for the bonds already in circulation (since the fixed interest rate on these bonds is higher than the current market rate). 


Will The Issues with U.S. Home Mortgage Rates Last?


For home buyers and real estate investors who are still shopping for a property, a potential silver lining of falling mortgage rates is reduced competition for housing stock. If mortgage rates march lower (which can also potentially increase your buying power in terms of mortgage size), then some of the urgency to buy a house before mortgage rates resume their upward climb might lessen. 


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Unfortunately, the likely much more significant driver for mortgages is inflation, the reason behind the dizzying rise of mortgage rates in the first place. Likewise, while housing prices might benefit from lower mortgage rates, the more likely outcome is inflation, along with supply chain issues (first COVID, then the Suez Canal, and earlier this month the Canada blockade—what next!), will continue to drive building material prices higher. In short, it will likely continue to be a challenging year for housing affordability.


What are your thoughts on how the Russian-Ukraine war affects your personal finances and the housing economy? Please share your thoughts with us in the comment section below. 


Main Image Credit: Seneline /

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