The big winners of the pandemic: 2% mortgage rate holders

As Fortune has previously reported, the low mortgage rates of the past are keeping some homeowners from selling and also triggering a wave of “accidental landlords,” because they don’t want to sell and lose their low rates. For some, they’re simply feeling lucky to have locked in lower rates for, what they say are, their “forever homes.” Either way, there’s pressure on both sides of the market, as 99% of borrowers have a mortgage rate below the current market rate, according to Goldman Sachs.  

“High interest rates are constricting both buying, obviously because people can’t afford these higher mortgage rates, and selling because homeowners want to hold on to their low interest rates,” Redfin’s chief economist Daryl Fairweather previously told Fortune. “There are fewer buyers and there are also fewer sellers, but the decline in buyers is what’s dragging down prices and the combination is what’s contributing to the decline in sales.”

Annie Tsai, chief operating officer at Interact, told Fortune that she purchased her home in San Mateo, California for around $1.7 million, with a 30-year fixed rate at 2.125% in 2021. Tsai said she took on a $1 million mortgage after putting down around $700,000. Her monthly payment is around $4,000 (not including taxes). 

“I don’t really see us selling anytime soon,” Tsai told Fortune. “It would be ideal to be able to keep the house for the long term since the rate is so attractive.” Tsai added later that she’s not “particularly attracted to the landlord lifestyle,” so she probably wouldn’t choose to rent it out. “I feel lucky,” Tsai said, adding later that it’s “solely unaffordable at this point and there’s too strong a need for housing.”

If Tsai had borrowed her $1 million at, say, a 7% mortgage rate, she would’ve seen a monthly mortgage payment of over $6,653. That’s 66% higher than her current payment.

Sue Smith, who is self-employed and in the investment industry, told Fortune that she refinanced her home in Nyack, New York in April 2022, after applying to refinance in the summer of 2021.

She called it “perfect timing” because rates started to climb shortly after, and she was able to lock in a 15-year fixed rate at 2.25%. Before refinancing, Smith had a 30-year fixed rate below 4%, so she isn’t saving on her monthly mortgage payments, but she’ll pay it off sooner. Not including taxes and insurance, her monthly payment is $5,895 and some change, on her $900,000 mortgage, Smith said. When asked if she’d ever sell her home, Smith said, laughing, “no we’re prisoners.” 

“We will never find this rate again,” Smith told Fortune. “If we were to sell this house and move into a house at half the cost, we would still be paying more on our mortgage…two and a half to three times more than what we’re paying now.” 

Again, if we were to calculate Smith’s monthly payment but at a 6% rate (since it’s 15-year fixed), it’d be $7,595. Still, Smith hopes to move at some point, as she gets closer to retirement. That being said, she’d likely keep her property and rent it out because it doesn’t make sense to her to give up the low mortgage rate. 

“You’ll never get this interest rate again, we’re not giving that up,” Smith told Fortune. 

Peter Gatto, a retired certified public accountant, told Fortune that he locked in a 15-year fixed rate at 1.875% in the summer of 2021 for his home in the San Francisco Bay Area, after applying to refinance in early 2021 because he figured rates were going to go up. 

“I knew I’d be retiring that year, 2021, with 22 years left on the old mortgage, and I saw the interest rates dipped below 2% on 15 years,” Gatto said. “So even though my payments went up, my remaining years went down by seven years, and I’m gonna save like $75,000 in interest… because I’m doing it for seven years less and at a lower interest rate.” 

Gatto said it’s unlikely that he’ll ever sell his home. But he does hope to eventually live abroad, when his circumstances allow it, and at that point he’d probably rent out his home instead of selling. If the rate wasn’t so low or if was having trouble making his payments, he’d probably sell it, Gatto said. 

Keller Williams Realty real estate agent based in Lafayette, Louisiana, Stephen Hundley, told Fortune that he refinanced his home at the end of 2020 for a 30-year fixed rate at 2.625%. Hundley said his monthly payment, including taxes and insurance, dropped from $2,300 to $2,100. When Hundley bought his home, he wasn’t planning on moving but “getting this low of a rate definitely solidified that decision,” Hundley said. 

“We’re not going to be moving anytime soon,” Hundley told Fortune. “I mean, I would say we’re definitely going to be here for at least the next 20 years.” And if Hundley did have to move, he’d make it a rental because he’d “be able to cash flow it pretty well with a 2.625% interest rate.” 

But as a real estate agent, Hundley knows that the people who’ve refinanced or purchased homes in the last few years are holding on tight to their low rates. That being said, the so-called lock-in effect is creating “a market with really low inventory,” Hundley said. 

Hundley said he was speaking with a client of his recently, and the client wanted to move-up and purchase a four bedroom and sell his smaller three bedroom home. But after locking in a 3% rate, Hundley’s client said he couldn’t justify selling his home and buying another at a six to seven percent rate and paying around twice as much each month. “He’s just kind of stuck,” Hundley said, referring to his client. 

“It was so abnormal,” Hundley said, referring to the Pandemic Housing Boom. “And we’re seeing the effects of it now, but our inventory is going to stay low for a very long time because people are just reluctant to sell these [homes] with [low] interest rates.”