“Stuck” with a Great Mortgage Rate? What Mortgage Lock-In Means for Buyers and Sellers in St. Louis

Homeowners who locked into near-3% interest rates during 2020–2021 are now hesitant to sell, because it means buying another property that could require a 6% rate or higher. This “mortgage lock-in effect” is causing many would-be sellers to stay put, which means a smaller housing supply in St. Louis — and fewer options for eager buyers. 

Whether you’re on the selling or buying side, you may be wondering when the best time is to make a move. We’ll tell you how to weigh the costs on both ends.

According to the Federal Reserve Bank of St. Louis, more than 90% of current mortgages are 30-year fixed-rate contracts. While those who purchased a home prior to 2008 likely attained a fixed rate higher than 6%, buyers since then have locked into lower rates — particularly those who bought or refinanced five years ago. In July 2020, the average fixed rate on a 30-year loan dropped below 3%, and stayed there through September 2021. 

From there, rates began to rise until October 2023, when they peaked at nearly 8%, then slowly declined. Today, mortgage rates are hovering near 6%, which seems low compared to the spike two years ago. But many who were lucky enough to lock into that 3% sweet spot are holding off on selling until rates drop further, especially those who are in the market for a more expensive home.

Mathematically, buying a house of the same size and price with an interest rate that’s twice as high can double a mortgage payment. For buyers wanting to move into a bigger, more expensive home, the monthly payments can seem completely out of reach. But there’s more to consider when it comes to affordability in today’s housing market.

According to Realtor.com’s recent survey of sellers who feel locked in, the decision of whether  to swap out a current home for another will depend on several factors:

The Seller’s Age

Younger generations, such as Gen Z and millennials, likely have more substantial outstanding mortgage debt than older folks who have built up equity, so it often makes sense to stay put until more of the principal is paid down. Of course, if a job change comes into play or it’s better to move to a better school district, waiting might not be worth it. 

Gen X owners likely have a more substantial income and may have had a larger down payment on their current home to begin with. And according to the Realtor’s survey, a third of Gen X-ers say they plan to sell for personal reasons despite higher interest rates. At this age, downsizing to a home that’s easier to care for or moving closer to family members matters more than a bigger mortgage payment. 

Baby Boomers generally have the least debt and may even be close to paying off their homes. A majority of the 60+ crowd reports not feeling locked into their current home by a low interest rate and are willing to sell to move on to what’s next.

Equity 

The decision of whether or not to sell may have a lot to do with how long one has owned the home and how much the value has increased. Around 85% of sellers are happy with the amount of equity they have, with a third of sellers estimating they have over $100,000 of equity and more than 40% having $200,000. Home prices have grown twice as much as normal since the pandemic, and the average value of a St. Louis home today is nearly $100,000 more than in 2020. If selling now – even with higher interest rates — allows you to put a large chunk down on your next home, you might consider listing. 

Expectations When it Comes to Offers

While St. Louis is one of the hottest housing markets, it’s important to be realistic when putting a home up for sale. Although there’s a limited housing supply in St. Louis, expecting to get more than asking price, multiple offers within a week, and a buyer who will waive contingencies could set you up for disappointment. A big part of the mortgage lock-in effect is that buyers who already have a great interest rate will not pay more than what a home is worth, and they’re going to be careful about inspections and warranties. List a move-in-ready home at a fair price point, and you’re likely to draw plenty of interest and sell within a month.

Since low-mortgage-rate homeowners are already wondering how much they can afford with a higher rate, it’s important to consider exactly how much will be pocketed after the sale of a home, especially considering how much home prices have gone up. Making a large profit from the sale can make you subject to capital gains tax, even if you put it all into the new house. 

How much you owe will depend on how long you’ve owned the home and your tax bracket. Long-term capital gains apply to assets held a year or longer. Anything owned for less than a year is subject to short-term capital gains. 

Long-term gains have an exclusion. As long as the profits are under $250,000 for a single person or $500,000 for a married couple filing jointly. No tax is owed. Anything over that threshold is subject to ordinary income tax rates. So, for example, a $600,000 profit for a couple would generate tax only on the $100,000 over the limit. 

Short-term capital gains are taxed as regular income without the $250,000 or $500,000 exclusion. So selling a house that you’ve only owned for a year can mean owing a big sum to the IRS.

Tax laws change often, so it’s best to research any capital gains concerns or discuss them with an accountant before putting your house on the market.

The best time to purchase a home is different for everyone. It depends on each buyer’s financial situation, but also on family dynamics, job opportunities, and other personal details. If you’re waiting for a lower mortgage rate, you probably won’t see much of a change in 2026. Most experts predict the 30-year fixed rate will average between 5.90% and 6.30% by the end of the year, which isn’t too far off from what the rates are now.    

If you’re outgrowing your current home, tired of renting, relocating for work, or know you can afford a mortgage payment despite higher interest rates, now may be the time to take the leap. The knowledgeable real estate agents at Berkshire Hathaway HomeServices Select Properties can show you homes to fit your needs and budget. Contact us today to get started.