Mortgage ‘Swappers’ Signal End of ‘Horrible Lock-In Effect’ As Homeowners Trigger Big Change in Rate Shares Over 6%

The U.S. housing market turned around in the second quarter of 2025, with the share of homeowners with mortgages of more than 6% surpassing those with less than 3%—a change that reflects the easing of the dreaded “lock-in effect.”

In the third quarter of 2025, 20% of mortgages had an interest rate of less than 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% increased to 21.2% from 19.7% in the quarter.

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

“This may indicate ‘swappers,’ or borrowers who are swapping a lower rate loan for a higher rate,” Jones explained. “The declining share of subprime mortgages can also indicate that consumers are paying off their mortgages and becoming homeowners.”

A recent analysis of federal mortgage data showed that less than one-third of outstanding loans (31.5%) carry interest rates between 3% and 4%, down from 32.1% in Q2. Another 17.1% fell in the 4%–5% range, representing a quarter-over-quarter decline of 0.8 percentage points. Additionally, 10.2% is between 5% and 6%, up from 9.9% in the previous quarter.

“It’s definitely an important milestone in looking at the normalized market,” Sarah DeFloriovice president of mortgage banking at William Raveis Mortgage,” he tells Realtor.com.

“At the end of the day, this change is driven by normal life events such as starting or raising a family, divorce, and death. Another important factor is career change, whether it’s through changing jobs and moving to a different location or the need to return to the office.”

At the same time, an increasing number of builders were offering purchase rates and other incentives, which could increase the share of loans in the range of 4%-6%.

Why a share decline of less than 3% is important

“A big thing just happened in the US Housing Market,” real estate investor and CEO of Reventure app Nick Gerli wrote in a recent X post, arguing that a decline in the share of homeownership below 3% means the “Horrible Mortgage Value “Lock-In” Effect is ending.”

Here’s the bottom line: At the height of the COVID-19 pandemic in 2020, interest rates are falling to historic lows of less than 3%, creating an influx of new home buyers into the market.

But the relief was short-lived, and in 2023, the interest rate on a 30-year mortgage rose past the 7% mark, which brought a major blow to purchases.

While rates have since eased, staying in the low 6% range through the end of 2025 to 2026, many homeowners are left feeling “locked in” with their lowest rates since the pre-Covid era.

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

But as of the third quarter, a growing percentage of existing owners are carrying mortgages that are 6% higher. According to Gerli, that change gives many owners an incentive to sell now.

The investor emphasizes that the main reason that the share of borrowers with rates above 6% increased, to a level not seen since 2015, is that even in today’s challenging environment, 5 to 6 million Americans take out new mortgages each year at higher rates.

Jones says there may be something more important at play here.

“Some families who delayed moving in anticipation of lower rates may have decided to do so as mortgage rates are decreasing, making the time seem good even though the cost of borrowing has increased,” he said.

DeFlorio notes that a large group of homeowners who opted for a modified mortgage during the pandemic will soon see their term expire, potentially freeing up another large portion of “locked-in” inventory.

Is the “lock-in effect” over?

The short answer is, not yet.

Recent data analysis reveals that nearly 80% of outstanding mortgages still carry rates below 6%, indicating that the foreclosure rate remains strong.

However, the decrease in the share of outstanding loans of less than 3%, combined with the growing share of loans of more than 6%, points to the “locking effect” gradually loosening its grip on the housing market.

“This shift represents a significant inflection point, suggesting market movement as more households trade in lower credit for higher mortgages or enter the market for the first time,” Jones said.

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

While the “lock-in effect” remains a force to be reckoned with, a recent survey found that 40% of homebuyers would be willing to buy a home if mortgage rates fell below 6%, and 32% would be willing to accept home ownership if rates fell below 5%.

Looking ahead to next year, Realtor.com economists expect that Q4 2025 data may show the share of loans under 6% falling to near 75% as the share of those with rates above 6% continues to grow amid continued home buying activity.

“This has been welcome news for many in the industry, with the effect of more listings creating downward pressure on prices, which, coupled with lower prices, should create more buying opportunities as we head into 2026,” DeFlorio said.

“I don’t know that it will be enough to move the needle for many first-time homebuyers who are struggling with the high cost barrier to entry, but hopefully as we continue over the next few years and prices continue to drop, affordability for these buyers will improve.