Perhaps you’ve recently heard the term “mortgage rate lock-in effect”, and wondering what the heck it is, and what it means for our local real estate market, and potentially you. The term has gained traction in recent months as mortgage rates have continued to rise, along with home prices.
The mortgage or housing “Rate Lock-in Effect” is an unwillingness (or inability) of home owners to sell their home because they have a low (fixed) mortgage interest rate, and therefore a relatively low monthly housing payment compared to what they could achieve if they were to buy a comparable home at current mortgage rates and home prices.
Such a high mortgage rate situation, coupled with rising or elevated home prices discourages would-be home sellers that want to purchase a different home to gain more space, move to a different neighborhood, find a new school district, etc. due to a considerably higher cost of home ownership.
Homeowners that are “locked in” may have refinanced their home with a lower mortgage rate over the last few years when mortgage rates where much lower and hit record lows around August 2021 (down to approximately 2.7%, 30 year fixed).
The rate lock-in effect does not however impact all people equally. Oftentimes there's a true need to move such as a new job and location or an aging couple requiring a smaller, single story home.
Rates Trend Down, Down, Down, then Way Up
The graph below from Mortgage News Daily depicts mortgage rates over the last ten years. If a buyer uses financing, it’s now considerably more expensive to buy a comparable home than just 6 months ago! This is driven primarily due to the fact that home prices have not decreased, but in fact have continued to rise along with mortgage rates.
Mortgage rates have more than doubled from about January 2021.

Some Good News?
Recent housing data for Snohomish County suggests we’re seeing a slowing of home value increases as higher mortgage rates take their toll on home affordability.
As home affordability worsens in Snohomish County, it increases the supply of homes (they're not selling within a couple days). This in turn can have a stabilizing effect on home prices, and over time, can cause prices to retreat from record highs, especially if mortgage rates remain at elevated levels.
However, don't get too excited as we still have a historically low supply of homes listed for sale, which brings us back to the rate lock-in effect and people unwilling to sell (along with other factors such as new construction not keeping pace).
We've recently witnessed both home values and mortgage rates rising together in Snohomish County and much of the US. This however cannot continue and one has to give. It seems likely be home prices until the Fed feels the economy has cooled, which then may allow mortgage rates to trend down.
OUCH! Mortgage Rates Double in Six Months!
To pursue a slight housing upgrade in the same area at the current housing values and mortgage rates (June 2022), the monthly mortgage payment would more than double!
The following example illustrates why a home owner who recently purchased and refinanced a home would be unlikely or perhaps unable to purchase a comparable home at today’s home prices and mortgage rates.
Location Snohomish County (Washington State). All values used in below example are estimates only.
2300 sq.ft (3 bedroom, 2.5 bathroom) home purchased in 2017 for $600,000 with a 30 year mortgage, rate of 4%. Monthly Payment: $2,860 (principal & interest only)
Home refinanced during August 2021 at 2.8% (amount re-financed after four year pay down: $553,000). Monthly Payment: $2,270 (principal & interest only)
So now it’s June 2022 and the homeowners would love to find to a slightly larger home for their growing family in the same Snohomish County area. They’re considering a 2700 sq.ft (4 bedroom, 2.5 bathroom), listed at $1,200,000. The 30 year fixed mortgage interest rate is 6%.
Their current home’s estimated value is $1,000,000. The amount owed on their mortgage is $543,000. If the homeowners were to sell their home for $1 million, they would net an estimated $337,000 of equity to use as a down payment on the new 2700 sq. ft home.
Calculation:
Current home value is $1,000,000, less the amount owed on mortgage of $543,000 = $457,000. Then subtract estimated selling fees of $120,000.
(Learn more about the average cost to sell a home here, and potential capital gains tax here. In this situation, the homeowners avoid the capital gains tax as their capital gain is under $500,000, assuming a married couple).
Home equity = $457,000 - $120,000 selling fees = $337,000 that owners walk away with for their new home down payment.
New Home Price: $1,200,000 less down payment of $337,000 = $863,000 as the amount to be financed with a 30 year fixed mortgage at 6%. Monthly Payment: $5,175 (principal & interest only)
If you want to check my work or run your own numbers, try this Mortgage Calculator from Mortgage News Daily. And please remember, I’m showing the payment for Principal and Interest only, so it does not include Insurance, Property Taxes, or Mortgage Insurance.
To pursue a slight housing upgrade in the same area at the current housing values and mortgage rates (June 2022), the monthly mortgage payment would more than double!
Hopefully this helps illustrate what the “rate lock-in effect” is, and how it’s influencing and even forcing people to stay in their current home with a lower mortgage rate and payment than what could be realized by selling and buying a new home under the current market dynamics. This in turn impacts the housing market as less folks are likely to sell – reducing housing supply and ultimately effecting affordability.
Snohomish County Housing Affordability
Housing affordability is at all-time lows (meaning housing is more expensive than ever for buyers) in Washington State, including Snohomish County. You can see further details and trends by County from the AWB Institute here.

Housing Affordability from awbinstitute.org
So How Does This End?
The mortgage rate lock-in effect is influencing local housing inventory, and the real estate market in general. How much of a factor is it? Well, that’s tough to fully assess as there are many current economic and real estate forces at play driving housing affordability issues.
To break out of the mortgage rate lock-in effect, housing affordability needs to better align with household incomes. In Snohomish County for the average family, it has become significantly more expensive to purchase a home as wages and salaries have not kept up the cost of housing.
To wiggle our way back to "reasonable" housing costs and where the average worker and household can actually afford to sell and move (and where a first-time home buyer has a chance), it will likely take several factors such as mortgage rates and housing prices to stabilize or decrease, an increased housing supply (more new homes and more people selling), wage increases, and improved consumer confidence about the economy (get inflation in check and snuff out fears of a recession).
The million dollar question is how any of this will happen, and when. At this point nobody knows, and only time will tell. However, with the Federal Reserve raising interest rates and driving up mortgage rates, it seems we are on the path of a slowing economy that will hopefully bring the real estate market back into reality without causing collateral damage.
What are your thoughts on the lock-in effect, and our current real estate market in Snohomish County, and beyond?
Did you refinance over the last couple years and now feel “locked in” to your current mortgage rate and home?
Due to high mortgage rates and home prices, are you considering putting your home’s equity toward remodeling or home additions instead of a down payment on a new home?
Please feel free to share your situation, leave a comment/concern, or ask questions in the below comments section.
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