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Answer: Prevailing interest rate is lower than rate paid under current mortgage
The lock-in effect occurs when the current market rate is **below** the borrower’s existing mortgage rate, making the borrower reluctant to sell because moving would mean giving up a favorable mortgage and taking on a new loan at current market rates.
Author: Manit Arora
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Question 51.3. The lock-in effect refers to a homeowner who resists a sale (turnover) because:
A
Prevailing interest rate is lower than rate paid under current mortgage
B
Prevailing interest rate is higher than rate paid under current mortgage
C
Loan balance exceeds appraised value of house
D
Adjustable rate is capped
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