Mortgage swappers signal an end to the ‘dreaded lock-in effect’ as homeowners cause a major shift in interest rates above 6%

The US housing market turned around in the second half of 2025, with the share of homeowners with mortgages above 6% exceeding the share of homeowners with interest rates below 3% – a shift that signals an easing of the feared ‘lock-in effect’.

In the third quarter of 2025, 20% of mortgages had interest rates below 3%, compared to 20.4% in the second quarter, according to the latest Realtor.com® Outstanding Debt Report.

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

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

“This may reflect ‘swappers,’ or borrowers trading in a lower-interest mortgage for a higher-interest mortgage,” Jones explains. “The shrinking share of low-interest mortgages could also reflect buyers paying off their mortgages and becoming owners outright.”

The latest analysis of federal mortgage data shows that less than a third of outstanding mortgages (31.5%) have interest rates between 3% and 4%, down from 32.1% in the second quarter. Another decline of 17.1% in the 4% to 5% range, reflecting a quarter-over-quarter decline of 0.8 percentage points. Moreover, 10.2% is between 5% and 6%, compared to 9.9% in the previous quarter.

“It is definitely an important milestone on the road to a more normalized market,” Sarah DeFloriovice president of mortgage banking at William Raveis Mortgage” tells Realtor.com.

“Ultimately, this shift is driven by normal life events such as starting or growing a family, divorce and death. Another major driver is a change in employment, either through job changes and moving to a different geographic region or a requirement to return to the office.”

At the same time, a growing number of builders have offered interest rate buydowns and other incentives, which could boost the share of mortgages between 4% and 6%.

Why the declining share of less than 3% matters

“Something big just happened in the US housing market,” said real estate investor and Revenge app CEO Nick Gerli wrote in a recent one X messagearguing that the declining share of mortgage holders below 3% means that “the feared ‘lock-in’ effect on mortgage rates is fading.”

Here’s the result: At the height of the COVID-19 pandemic in 2020, interest rates fell to an all-time low of less than 3%, leading to a wave of new homebuyers entering the market.

But the relief proved short-lived and in 2023 the thirty-year mortgage rate skyrocketed to above 7%, dealing a major blow to affordability.

Although rates have since eased, landing in the low 6% range in late 2025 and into 2026, many homeowners felt “locked in” by their ultra-low rates from a bygone COVID era.

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

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

The investor claims that the main reason the share of borrowers with interest rates above 6% has increased, reaching levels not seen since 2015, is that even in today’s challenging environment, 5 to 6 million Americans are remortgaging each year at higher interest rates.

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

“Some households that had postponed moving in anticipation of lower interest rates may have decided to act as mortgage rates fell, making the timing feel more favorable despite still higher borrowing costs,” she says.

DeFlorio notes that a significant 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 portion of the “locked-in” inventory.

Is the ‘lock-in effect’ over?

The short answer is: not yet.

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

However, the shrinking share of outstanding loans below 3%, combined with a growing share of mortgages above 6%, indicates that the ‘lock-in effect’ is gradually losing its grip on the housing market.

“This shift marks a meaningful inflection point, signaling greater market movement as more households trade low-interest mortgages for higher-interest loans or enter the market for the first time,” Jones says.

Between the third quarter of 2024 and the third quarter of 2025, the share of homeowners with mortgages with interest rates of 6% or higher increased by more than 4 percentage points, as homes continued to sell despite higher rates as people married, welcomed children, changed jobs or divorced.

While the ‘lock-in effect’ remains a factor to consider, a recent survey found that 40% of prospective buyers would find a home purchase feasible if mortgage rates fell below 6%, and 32% of them would be willing to embrace home ownership if rates fell below 5%.

Looking to the year ahead, Realtor.com economists expect that fourth-quarter 2025 data could show the share of mortgages below 6% falling nearly 75% as the share of mortgages with mortgage rates above 6% continues to grow due to continued homebuying activity.

“This is certainly welcome news for many in the industry, with the implication that more listings create downward pressure on prices, which, combined with lower rates, should create more buying opportunities as we move into 2026,” DeFlorio says.

“I don’t know if this will be enough for many first-time homebuyers who struggle with the high cost barrier to entering the market, but hopefully affordability will improve for these buyers as we move forward in the coming years and rates continue to decline.”