The current distribution of outstanding 30-year fixed-rate mortgages reveals a market bifurcated by interest rates.

A vast majority of homeowners benefit from historically low financing secured before the Federal Reserve’s 2022 tightening cycle, while a growing minority holds mortgages at rates prevailing in the current, more expensive environment.

At the time of writing, the average 30-year fixed rate stood at 6.21%, creating a wide gap for the more than 80% of homeowners with rates below 6%.

Analysis of the most recent comprehensive data from Q2 2025 shows a market heavily skewed towards the low end of the rate spectrum.

Over half of all outstanding mortgages (52.5%) have an interest rate below 4%. The concentration is a direct result of the massive refinancing wave during the pandemic era of ultra-low rates.

Rate Band	Percentage of Outstanding Mortgages	Cumulative Percentage
< 3%	20.4%	20.4%
3% to 4%	32.1%	52.5%
4% to 5%	17.9%	70.4%
5% to 6%	9.5%	79.9%
≥ 6%	19.7%	100%

Source: Redfin/FHFA, Realtor.com.

On the flip side, the percentage of mortgages in the > 6% rate band continues to climb.

How did we get here?

The period of 2020-2021 was defined by the Federal Reserve’s response to the COVID-19 pandemic, which pushed mortgage rates to unprecedented lows.

The 30-year fixed rate fell below 3%, triggering a historic refinancing boom.

The concentration of low-rate loans culminated in the first quarter of 2022.

At this peak, a remarkable 65.1% of all outstanding mortgages had an interest rate below 4%.

A sharp turning point occurred in 2022 as the Fed initiated an aggressive cycle of rate hikes to combat inflation.

Mortgage rates surged, consistently remaining above 6% since September 2022.

This abruptly ended the refinancing boom and cemented the lock-in effect.

From 2023 through 2025, the distribution has been slowly migrating towards higher rates.

As some homeowners move for non-financial reasons and new buyers enter the market, the share of higher-rate loans has grown.

Metric	Peak Low-Rate Share (Q1-Q2 2022)	Current Share (Q2 2025)	Change
Share of Mortgages <4%	65.1% (Q1 2022)	52.5%	-12.6 pp
Share of Mortgages <6%	92.7% (Q2 2022)	80.3%	-12.4 pp
Share of Mortgages ≥6%	7.3% (Q2 2022)	19.7%	+12.4 pp

Source: Redfin

The share of loans with rates of 6% or higher has relentlessly grown from a low of 7.3% in Q2 2022 to 19.7% by Q2 2025, while the share of loans below 4% has eroded from its 65.1% peak to 52.5% over a similar period.

MBS Duration & Convexity

The rate distribution has profound implications for the Mortgage-Backed Securities (MBS) market.

With the vast majority of borrowers “out of the money” for refinancing, prepayment speeds are historically low.

This low prepayment risk extends the expected life of MBS cash flows, leading to higher duration.

The large volume of low-coupon bonds (e.g., 2-4%) from the 2020-2021 boom now dominates the market.

These low-coupon MBS exhibit significantly higher durations, making the entire MBS market more sensitive to interest rate changes.

Ginnie Mae II MBS (Aug 2025)	Duration (Years)
2.0% Coupon	6.64
6.5% Coupon	3.25

Source: Ginnie Mae

MSR Valuation

Mortgage Servicing Rights (MSRs) valuations are highly sensitive to prepayment speeds.

The value of an MSR is derived from future servicing cash flows; faster prepayments shorten the life of these flows and erode the MSR’s value.

In the current environment, low prepayment expectations have extended the duration of servicing cash flows, supporting higher MSR valuations.

MSRs tied to low-coupon loans are particularly valuable. However, this creates a significant tail risk.

A sharp drop in market rates could trigger a wave of prepayments in higher-rate cohorts, leading to sudden, severe mark-to-market losses on their associated MSRs.

For example, a rate drop to 5% could put the 5-7% cohorts “in the money” for refinancing.

These cohorts represent 22% of Fannie Mae’s book (8% in the 5-6% band and 14% in the 6-7% band), posing a considerable risk to MSR holders.

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