Homeowners With Sub-4% Mortgage Rates Are On the Move—and They’re Buying Newly Built Homes

A growing number of homeowners who were lucky enough to secure sub-4% mortgage rates are now choosing to give them up in exchange for the opportunity to move into brand-new homes—even if it means taking on a higher rate.

As of late September, mortgage interest rates remain above 6% after months of gradual easing, offering a measure of hope to would-be buyers grappling with affordability challenges. 

Meanwhile, homeowners holding onto rates below the 6% threshold, which account for just over 80% of all outstanding mortgage debt in the U.S., continued to feel "locked in."

"Many potential borrowers feel 'trapped' by their current rates, and to be honest, quite often their affordability has been very impacted by both rates and higher prices," Sarah DeFlorio, vice president of mortgage banking at William Raveis Mortgage, tells Realtor.com®.

However, a zoomed-in look at the sub-6% group reveals a more nuanced picture, showing some shifts within this segment.

Between the first and second quarters of 2025, the share of mortgages below 3%—harking back to historic COVID-19 pandemic-era lows—edged down from 20.7% to 20.4%, according to the latest report on outstanding debt from Realtor.com.

Notably, the next tier of rates, between 3% and 4%, saw an even sharper decline, shrinking from 32.7% to 32.1% for the same period.

Mortgages with 4% to 5% and 5% to 6% rates kept steady, at 17.9% and 9.9%, respectively, while the share of mortgages above 6% ticked up 0.9 percentage point, reaching 19.9%.   

The shrinking low range

So why has the share of sub-4% mortgage debt been decreasing?

Realtor.com senior economic research analyst Hannah Jones explains that the downward shift in that category has to do at least in part with enterprising construction companies.

"Builders are offering incentives like rate buydowns, which help some buyers lock in rates between 4% and 6%, keeping that group steady," she says. "As a result, fewer buyers have rates below 4%, while the share with rates above 6% continues to grow."

Homebuilders eager to drum up business and move some of their languishing inventory have been increasingly offering a variety of incentives such as cash at closing, included appliances, upgrades, and, perhaps most significantly, rate buydowns.

A buydown is a cost paid upfront by the builder to lower a buyer's interest rate, often for the entire loan term, resulting in lower monthly payments.

A half-point rate reduction can save buyers roughly $178 per month, or more than $2,000 per year, according to Jones.

Another way homebuilders have responded to current market conditions is by offering smaller, more affordable homes.

A homeowner with a mortgage rate below 4%—a level not seen since March 2022—would need a compelling reason to move, as doing so would mean taking out a new mortgage at a significantly higher rate.

"Most owners will move only if they have to, delaying as long as possible in hopes that rates come down," says Jones.

Having the opportunity to purchase a newly built home with a generous incentive courtesy of a builder appears to be one such compelling reason. Others include major life events such as marriage, divorce, and the birth of children.

Impact on the housing market

At the same time, the overall housing market remains mostly unchanged from the previous months: 80.3% of outstanding mortgages are currently under 6% and 70.4% are under 5%.

"Because most mortgage holders currently have rates below 6%, many homeowners are reluctant to move," says Jones. "They'd be trading a more favorable interest rate for a less favorable one."

Over time, as newer mortgages at higher rates build up, a greater share of homeowners will carry rates over 6%.

"This dynamic keeps housing supply tight and dampens turnover, unless mortgage rates decline significantly to entice more buying and selling activity," adds the analyst.

In some good news, a recent survey showed that 40% of potential buyers would find a home purchase feasible if mortgage rates were to dip below 6%, and 32% of buyers would be willing to jump back into the market if rates dropped below 5%. 

"Once we see a sustained period with rates below 5%, there will be a lot of new inventory as people feel better about their purchasing power," says DeFlorio. "There is also a chance that a rush of inventory may have a downward pressure on prices, which would also be welcome relief for many."

Realtor.com economists anticipate that by the end of 2025, the share of sub-6% mortgages could fall close to 75%. Or to put it differently, the number of mortgage holders with a rate of 6% or higher will likely climb.