The Mortgage Rate Prison: Why 30% of Homeowners Are Stuck and What It Means for Rental Demand

The lock-in effect isn’t theoretical anymore. We can now quantify exactly how many homeowners are trapped by their mortgage rates, and the numbers explain why rental inventory stays tight while home sales languish.

Over 30% of homeowners now carry mortgage rates above 5%. About 20% are paying over 6%. Four years ago, barely 10% of homeowners had rates above 5%.

This isn’t just interesting data. It’s the structural foundation supporting strong rental demand through 2025 and likely beyond.

The Math That Keeps People Frozen

Here’s what homeowners are calculating when they think about moving: if you refinanced at 2.875% in 2021 and want to buy a different house today at 6.2%, your monthly payment on the same loan amount more than doubles. A $400,000 mortgage at 2.875% costs $1,660 per month. That same $400,000 at 6.2% costs $2,450 per month.

That’s an extra $790 per month, or $9,480 per year, for the exact same principal balance.

Families who could afford to move based on income and equity can’t justify the payment shock. They’re prisoners of their own balance sheets, which creates a cascading effect we’re seeing play out in real time across our managed properties.

The Refinance Window Is Narrow and Specific

The Trump administration recently announced plans for Fannie Mae and Freddie Mac to purchase over $200 billion in mortgage-backed securities. Industry analysts estimate this could drop rates by about 15 basis points, pushing the 30-year fixed from around 6.25% down to 6.1%.

That sounds modest until you understand the clustering. The most popular mortgage rate over the past 3.5 years landed between 6.875% and 6.99%. Andy Walden from ICE Mortgage Technology nailed the psychology: “Nobody wanted to tell their neighbors they used a 7% interest rate to buy a home, so everybody bought down into this high 6% range.”

If rates drop to 6%, approximately 5.5 million homeowners could benefit from refinancing because they’d save at least 75 basis points, enough to justify closing costs. Drop rates to 5.88% and that number grows to 6.5 million homeowners.

Refinance applications are already up 120% year-over-year. That tells us borrowers are running the numbers constantly, waiting for their personal break-even point.

The Lock-In Effect in Hard Numbers

Roughly 39 million homeowners currently hold rates below 5%. About 12 million are locked in below 3%, enjoying mortgage payments that look like rent from 2015.

Last year, only 6% of homeowners with rates below 5% gave them up through refinancing to pull equity or selling their homes. That means 94% held on tight, choosing to stay put rather than reset their housing costs upward.

This creates a vicious cycle. Low inventory drives prices higher, which requires larger mortgages at higher rates, which makes the payment shock even more severe, which keeps more people locked in their current homes.

What This Means for Property Managers

We’re managing in a market where traditional homebuyer demographics are renting longer than historical patterns would predict. The 35-year-old couple with two kids and stable dual income who would have bought a starter home in 2019 is now renewing their lease because moving into homeownership means accepting a $500-800 monthly payment increase for a comparable or worse property.

This isn’t temporary. The 39 million homeowners with sub-5% rates aren’t giving those up unless forced by job relocation, divorce, or death. New household formation continues, but housing stock isn’t turning over at normal velocity, which means rental properties are absorbing excess demand.

We’ve adjusted our underwriting accordingly. Properties that would have faced moderate turnover risk in a normal market are now showing stronger retention because residents are running the same math as potential homebuyers and reaching the same conclusion: staying put is cheaper than moving.

The Buyer Perspective Barely Budges

For prospective homebuyers without an existing mortgage, a 15-basis-point rate drop saves about $35 per month on the average-priced home. Alternately, they could keep the payment and buy 1.5% more house.

Neither option is compelling enough to trigger urgency. That $35 monthly savings is $420 annually, barely enough to cover one month of homeowners insurance in many markets. The 1.5% additional buying power on a $400,000 home means affording a $406,000 home instead, which doesn’t meaningfully expand options in competitive markets where properties are listed in $25,000-50,000 increments.

The administration’s mortgage-backed security purchases move rates “in the right direction,” but the impact is measured in basis points while the problem is measured in percentage points. Buyers anchored to 3% rates from 2021 aren’t suddenly becoming enthusiastic at 6.1% instead of 6.25%.

The Structural Advantage for Rental Properties

This environment creates asymmetric opportunities. Homeowners are paralyzed. Buyers are waiting for rate drops that may never materialize or won’t be large enough to matter. Meanwhile, rental properties continue generating monthly income regardless of where 30-year fixed rates settle.

We’re seeing this play out in application quality. The dual-income professional households we’re leasing to in 2025 would have been homebuyers in 2019. They have the credit scores, the down payment savings, and the income stability. What they don’t have is the willingness to accept a 6%+ mortgage when they remember reading headlines about 2.875% rates just four years ago.

That psychological anchoring keeps them renting, which keeps our occupancy rates strong, which supports the conservative rent growth projections we’re using to underwrite new acquisitions.

Home Sales Remain Historically Depressed

The National Association of Realtors reported 4.06 million home sales last year, essentially unchanged from 2024 and down from 6.12 million in 2022. That’s a 33% decline in transaction volume over three years.

Lower transaction volume means less inventory turnover, which normally would crater rental demand as fewer people relocate. Instead, we’re seeing the opposite: strong rental demand despite low transaction volume because the people who would be moving are staying put or moving from one rental to another rather than into homeownership.

This isn’t how housing markets typically function. Normal patterns would show transaction volume and rental demand moving in opposite directions as buyers and renters flow between tenures. The current market breaks that relationship because the rate lock-in effect immobilizes both existing homeowners and prospective buyers simultaneously.

What We’re Planning For

We’re underwriting rental properties assuming rates stay in the 6-7% range through 2026. Not because we have special insight into Federal Reserve policy, but because our returns need to work in this environment, not some hypothetical future where rates drop back to 4%.

Properties showing strong cash flow at 6.5% mortgage rates with conservative rent projections are the ones we’re acquiring. If rates drop and we can refinance, excellent. If they stay elevated or rise further, we’re protected by buying at prices that work today.

The 30% of homeowners carrying rates above 5% aren’t giving those up voluntarily. The 20% paying over 6% are one economic shock away from needing to sell, which could create acquisition opportunities in distressed situations. The 94% who held onto sub-5% rates last year will likely do the same this year.

All of that supports continued strong rental demand from households who can afford to buy but won’t accept the payment shock, and from households who want to buy but can’t qualify at current rates and prices.

The Bottom Line

The mortgage market has created structural barriers that keep potential homebuyers renting longer than historical patterns would predict. A 15-basis-point rate drop doesn’t solve the problem when borrowers need 150-200 basis points to make the math work compared to their expectations.

This isn’t temporary dislocation. This is the new baseline until either rates drop substantially, prices correct significantly, or enough time passes that buyers forget what 3% mortgages felt like.

We’re building portfolios for that reality, not hoping for a return to 2020-2021 conditions that distorted every assumption about normal housing market behavior. The investors who adjust to current conditions will outperform those still waiting for the “right” market to return.

The lock-in effect is real, it’s quantifiable, and it’s creating opportunities for rental property investors who understand that other people’s paralysis can be your portfolio’s advantage.

For more information, visit Homeowner mortgage rates: Here’s the breakdown of U.S. borrowers.