Unwinding the “Lock-in Effect” Suddenly Stalls as Homeowners Stopped Paying Off Below-3% Mortgages

The share of mortgages with below-3% interest rates remained flat at 19.5% in Q1 2026 after declining steadily from a peak of 24.6% in Q1 2021, while combined below-4% mortgages fell only 20 basis points quarter-over-quarter, marking the smallest decline since their share began falling in 2022. The document attributes the stalling unwinding of the "lock-in effect" to homeowners retaining ultra-low mortgages that offer effectively free borrowing in real terms given inflation above 3%, though the stall could represent either a temporary blip or a longer-term freezing of the housing market.