Why homeowners are leaving 3% mortgages

Kelly and Stephen Auslander had something millions of people want: a mortgage rate below 3%.

2.375% to be exact.

But they gave it up. Why? The biggest reason was space. Their first home was a small townhome, and they’re growing their family. “We also wanted to move to a nearby area with better schools, and we’re now closer to family, which was really important to us as well,” says Kelly Auslander.

The conventional wisdom that homeowners are locked into their low mortgage rates is changing. People need flexibility. They need to be able to move for their employment, for their family and for their way of life. These factors often outweigh the so-called lock-in effect, especially as we get further away from the ultra-low rates of the past.

Elizabeth and Chris VanStee recently decided to ditch their 3.6% mortgage rate and take on a new mortgage at 6.5% for a new house about 15 miles away. With Chris having a new job with a further commute and Elizabeth’s job returning to the office, they both wanted to live somewhere closer to work.

“Other factors were that we were looking for a house with more outdoor space, access to nearby nature, and we found a house we really liked. It just made sense,” says Elizabeth.

Amanda Thompson, of Buffalo, New York, is planning to make a move to the Orlando, Florida, area soon, despite her current 3.2% mortgage rate. Why? She is sick of seeing the snow and wants a lifestyle change. “I’m willing to pay a little more for happiness and bigger, better opportunities,” Thompson says.

Certainly, the lock-in effect is real for many homeowners. But how long will it last? Homeowners have to weigh the tradeoffs between a low rate now and a new life elsewhere. Bankrate analyzed Federal Housing Finance Agency (FHFA) data and spoke to Realtors and homesellers to get the story of how the lock-in effect is changing.

The slow erosion of the lock-in effect

The lock-in effect arose out of the bottomed-out mortgage rates of 2020 through 2022 that led many homeowners who refinanced or bought at low rates to feel like they couldn’t afford to move. Moving would mean giving up their current low mortgage rate for a higher one, and likely, a more expensive home. But the further we move from those days of rock-bottom rates, the more people there are who have purchased at higher rates, slowly eroding the lock-in effect.

In fact, the number of mortgage holders with a rate at 6% or above surpassed those that have a rate at 3% or below in 2025, according to data from the FHFA. What’s more, the average interest rate of held mortgages slowly crept up from 3.8% in 2022 to 4.4% in 2025 — close to the average rate of held mortgages in 2019 (4.5%).

February 2026 had an average 30-year mortgage rate of 6.15% — the lowest rate in February since 2022. However, rates have moved up slightly as worries about inflation have taken hold and the war in Iran has impacted the global oil supply.

“Mortgage rates have moved up about a quarter percentage point in recent weeks as longer-term interest rates accounted for the increase in inflation and hence the reduction in the chance that Fed would cut further this year,” said Mike Fratantoni, chief economist for the Mortgage Bankers Association, in a statement following the Fed meeting on March 17 and 18. “We forecast that mortgage rates will range between 6% and 6.5% this year, and our latest weekly data show it’s trending towards the upper end of that range.”

The data is showing that life goes on for many people who have been waiting on the sidelines to move, according to Odeta Kushi, deputy chief economist at First American. 

“Even if rates don’t fall much from here, we’re already seeing the lock-in effect gradually loosen as life events (new jobs, growing families, downsizing, divorce, retirement) drive people to move regardless of rates,” Kushi says.

The housing market is already steadily ‘unfreezing.’

— Odeta Kushi
Deputy chief economist, First American

The strength of the lock-in depends on where you live

The low rates keeping people from selling don’t look the same everywhere. While it’s easy to take a national average and apply it broadly, certain regions are more impacted by this effect.

“What we see in the research is that a lot of those really low rate mortgages are concentrated in the West, in California, and really high-price markets,” says Hannah Jones, senior economic research analyst for Realtor.com. “If you have a larger loan, you have more incentive to refinance at those ultra-low rates and you have more incentives to stay put.”

Let’s illustrate this. Here’s the difference between the principal and interest (P&I) payment on the national median existing home price and the California median home price at a 3% and 6% mortgage rate. For this exercise, we assumed a 20% down payment.

The monthly P&I payment for the median price California home increases by $1,211 when you jump from a 3% to a 6% mortgage rate. That’s more than double the increase on a home at the national median price. Over the course of a year, the California home would cost $7,608 more than the national median home. 

This lock-in penalty doesn’t just apply to California, but to every higher-cost market, most of which are located on the coasts. On the opposite side, it’s weaker-than-average in many midwestern and southern markets.

Add in additional costs like reassessing property taxes with a new home purchase, and it’s easy to see why homeowners in high-cost areas aren’t as inclined to sell. This is playing out in the data. According to a report from First American, higher cost states are more likely to have homeowners locked into low rates, and as such, have experienced more sluggish housing markets since 2022.

No matter where you live, if your budget allows for buying, you should shop around for a mortgage. That advice is even more true during a time when rates are higher than were just a few years ago. 

Some are selling and waiting to buy — for now

With mortgage rates the way they are, some people selling aren’t interested in getting another mortgage. That especially applies to people downsizing or moving out of state. 

For Sarah Li-Cain and her family, they chose to sell their home in Jacksonville, Florida, with a 2.75% rate and move to Pittsburgh, Pennsylvania, to be closer to family. Instead of buying, they opted to rent to get to know the area better. “If we didn’t ultimately think the area or neighborhood was the best for us, we didn’t have to go through as many hoops to move,” says Li-Cain. Renting also allows their family to be in an area with a good school district that they wouldn’t otherwise be able to buy in.

Rents are declining in many metropolitan areas. Home prices, on the other hand, have remained sticky due to a lack of supply, says Realtor.com’s Jones. For some people, renting is a choice that prioritizes lifestyle over homeownership. They’re also hedging against risk, particularly in areas prone to extreme weather and other high costs. 

After all, homeownership is expensive. Beyond principal and interest, you’ve got a pile of expenses — over $21,000 a year according to Bankrate’s 2025 hidden cost of homeownership study.

Staying on the sidelines comes with risks

Economic uncertainty has led many people to bide their time when it comes to selling and/or buying a home. But being undecided comes with its own downsides, both financial and personal.

“Staying on the sidelines can carry risks,” cautions Kushi. “In inventory-constrained markets, a dip in rates can be met with higher prices as more buyers re-enter. Buyers who wait might secure a slightly lower rate, but end up borrowing more, which can erase — or even reverse — any monthly payment savings. And because buying and selling a home isn’t purely a financial decision, delaying too long can also mean postponing life choices that matter — more space, shorter commutes, better schools, caregiving needs and overall quality of life.”

For those playing the waiting game, the best thing they can do is plan, Jones advises. That means saving for a down payment and improving their credit. The good news is that things are looking better for buyers — rates are still lower than they were in for most of the past 3 years, and prices are softening in many markets.

“You know, it always feels expensive to buy a home,” says Jones. “It will still feel expensive to buy a home. But, buyers are a little bit more in the driver’s seat than they have been in the last few years.”

If the market becomes more favorable to buyers, that could mean more people breaking out of their low mortgage and unlocking a new home.