The Lock-In Effect Is Real: More Than 80% of Mortgages Have a Sub-6% Rate—and These Homeowners Aren’t Selling Anytime Soon

New York City school teacher Joann Mariani had no idea how extraordinary her timing was when she was shopping for a home in summer 2021.

In the thick of the COVID-19 pandemic—when lockdowns, face masks, and vaccines were common—she was looking for a new place to live in the upper Hudson Valley. At the time, mortgage rates had dipped to an astonishingly low 2% to 3%.

“It was a perfect-storm hot market,” says Mariani.

Competition was fierce due to pandemic-fueled migration shifts from urban centers, but savvy buyers also wanted to take advantage of these low rates.

When Mariani found her dream house—a three-bedroom, 1,046-square-foot home on Larchmont Road in Carmel, NY—she did not hesitate.

“I thought, ‘I better lock down this rate,'” she says.

To do so quickly, she bid $10,000 over the $265,000 list price. She also skipped applying for an FHA loan, instead cleaning out an old Roth IRA, withdrawing $75,000 for the down payment and closing costs and an additional $26,000 in taxes.

It was one of the best financial decisions she ever made, she says.

“Three months later, rates skyrocketed,” she adds. “A friend of mine bought a house near me the following year. Hers is only $4,000 more, but she’s paying $500 more a month.”

Since then, her home has seen a 36% appreciation, worth an estimated $100,000 more today than at purchase.

With her $8,354 annual property tax, home insurance, and mortgage, Mariani pays $1,851 a month, saving $450 per month from the rent she was paying for a three-bedroom home in the Bronx.

Extraordinary conditions

Mariani isn’t alone in her mortgage savvy. She and other homeowners who locked in low rates are holding on for dear life. This has created a lock-in effect for homeowners who are reluctant to trade in their low-rate mortgages for today’s higher ones.

In the third quarter of 2024, 21.3% of outstanding mortgages had an interest rate below 3%, according to the latest report from Realtor.com®.

The Freddie Mac fixed rate on a 30-year loan dipped below 3% in July 2020, and generally stayed below that threshold through September 2021, just when Mariani was closing on her dream home.

Highlighting how extraordinary these conditions were, this was the only period in the data’s history (back to 1971) when rates dropped below 3%. 

The lock-in effect

After roughly four months of improving mortgage rates, the tides have turned and rates are near 7% once again.

Mortgage rates reached a recent low of 6.08% in late September, but jumped to a six-month high of 6.93% for the week ending Jan. 9, according to Freddie Mac.

This is keeping many would-be sellers “locked in“ and hindering total inventory recovery.

Of the outstanding mortgages, 83% are still below a 6% rate and 21.3% are below a 3% rate. 

Roughly a third (33.9%) of outstanding mortgages have an interest rate between 3% and 4%, 18.1% have a rate between 4% and 5%, 9.5% have a rate between 5% and 6%, and 17.2% have a rate of 6% or greater.

Based on the recent mortgage rate report from Jan. 9, Freddie Mac revealed mortgage rates jumped to a six-month high of 6.93%, up from 6.91% last week.

Market conditions for the year ahead

For 2025, Realtor.com is forecasting that by the end of the year, the share of mortgages below 6% could fall close to 75%. Put differently, the share of mortgage holders with a rate of 6% or higher could increase by roughly 8 percentage points.

A recent Realtor.com survey revealed that a sizable 40% of potential buyers would find a home purchase feasible if mortgage rates were to drop below 6%, and 32% of buyers would be willing to participate if rates dropped below 5%. 

Easing inflation and mortgage rates will be key drivers of seller activity, which will relieve some of the high price pressure and competition felt in today’s under-supplied market. 

But it remains to be seen whether the Joann Marianis of the country, those with rates under 3%, will ever want to cash in.

“The thought of a home as a financial asset wasn’t even a consideration,” she says.

Instead, she says, she craved “freedom”—the ability to do what she wanted with her space and not be under a landlord’s rules.

“It was about leaving the city at the end of the day and having some quiet and green space. It was about not having to stress about putting nails in the wall to hang things, or how many cats I could foster. So freedom was probably the main reason for wanting to own.”

That doesn’t mean she’s not grateful for her low rate. “I had the right idea at the right time,” she says.