Mortgage ‘Swappers’ Signal the End of the ‘Dreaded Lock-In Effect’

The U.S. housing market turned a corner in the second half of 2025, with the share of homeowners carrying mortgages above 6% surpassing those with rates below 3%—a shift that signals an easing of the dreaded "lock-in effect."  

In the third quarter of 2025, 20% of mortgages had an interest rate below 3%, down from 20.4% recorded in Q2, according to the latest report on outstanding debt from Realtor.com®.

Meanwhile, the share of borrowers with interest rates higher than 6% climbed to 21.2% from 19.7% quarter over quarter.

Realtor.com Senior Economic Research Analyst Hannah Jones notes that between the second and third quarters, most of the shifts in mortgage share occurred within the below-4% brackets.  

"This may reflect 'swappers,' or borrowers exchanging a lower-rate mortgage for a higher-rate one," explains Jones. "The shrinking share of low-rate mortgages could also reflect buyers paying off their mortgages and owning outright." 

The latest analysis of the federal mortgage data showed that less than one-third of outstanding mortgages (31.5%) carry interest rates between 3% and 4%, down from 32.1% in Q2. Another 17.1% fall in the 4%–5% range, reflecting a quarter-over-quarter decrease of 0.8 percentage points. Additionally, 10.2% are between 5% and 6%, up from 9.9% the previous quarter.

"It's definitely an important milestone towards a more normalized market," Sarah DeFlorio, vice president of mortgage banking at William Raveis Mortgage," tells Realtor.com.

"At the end of the day, this shift is driven by normal life events such as starting or growing a family, divorce, and death. Another important driver is a change in employment, whether through job changes and moving to a different geographic region or a return-to-office requirement."

At the same time, a growing number of builders have been offering rate buydowns and other incentives, which could be boosting the share of mortgages in the 4%-6% range.

Why the decreasing sub-3% share matters

"Something big just happened in the U.S. Housing Market," real estate investor and Reventure app CEO Nick Gerli wrote in a recent X post, arguing that the diminishing share of sub-3% rate mortgage holders means "the dreaded Mortgage Rate "Lock-In" Effect is fading."

Here's the upshot: At the height of the COVID-19 pandemic in 2020, interest rates plunged to historic lows below 3%, prompting a surge of new homebuyers into the market.

But the relief proved short-lived, and by 2023, the 30-year mortgage interest rate skyrocketed past the 7% mark, delivering a major blow to affordability. 

While the rates have since eased, settling into the low-6% range by the end of 2025 and into 2026, many homeowners were left feeling "locked-in" by their ultralow rates from a bygone COVID era.

For those owners, selling in a market where the average rate on 30-year fixed home loans stands at 6.16% often means giving up a 3% mortgage and taking on a new one at more than double the rate, with the typical buyer of a median-priced home facing a nearly $1,000 in monthly payments.

But as of the third quarter, a growing percentage of existing owners already carry mortgages topping 6%. According to Gerli, that shift offers more owners an incentive to sell now.

The investor maintains that the main reason the share of borrowers with over-6% rates has climbed, reaching a level not seen since 2015, is that even in today's challenging environment, 5 million to 6 million Americans take out a new mortgage each year at elevated rates.

Jones says there could be another crucial factor at play here.

"Some households that had delayed moving in anticipation of lower rates may have decided to act as mortgage rates softened, making the timing feel more favorable despite still-elevated borrowing costs," she says.

DeFlorio notes that a sizeable cohort of homeowners who opted for adjustable-rate mortgages during the pandemic will soon see their fixed-rate periods end, potentially freeing up another large segment of "locked-up" inventory.

Is the "lock-in effect" over?

The short answer is, not yet.

The latest data analysis reveals that roughly 80% of outstanding mortgages still carry rates under 6%, indicating that rate lock-in remains substantial.

However, the shrinking share of sub-3% outstanding loans, combined with a growing share of mortgages over 6%, points to the "lock-in effect" gradually loosening its grip on the housing market.

"This shift marks a meaningful inflection point, suggesting increased market movement as more households either trade in low-rate mortgages for higher-rate loans or enter the market for the first time," says Jones.

Between the third quarter of 2024 and the third quarter of 2025, the share of homeowners holding a mortgage with a rate of 6% or above increased more than 4 percentage points because homes continued selling despite elevated rates as people married, welcomed children, switched jobs, or split up.

Although the "lock-in effect" remains a force to be reckoned with, a recent survey found that 40% of aspiring buyers would find a home purchase feasible if mortgage rates were to dip below 6%, and 32% of them would be willing to embrace homeownership if rates dropped below 5%.

Looking at the year ahead, Realtor.com economists expect that the Q4 2025 data could show the share of mortgages below 6% falling close to 75% as the share of those with over-6% rates continues to grow amid ongoing home buying activity.

"This has certainly been welcome news to many in the industry, with the implication of more listings creating downward pressure on pricing, which, coupled with lower rates, should create more buying opportunities as we head into 2026," DeFlorio says.

"I don’t know that it’s going to be enough to move the needle for many first-time homebuyers struggling with the high-cost barrier to entering the market, but hopefully, as we move through the next few years and rates continue to come down, affordability for these buyers will improve."