Debt Ceiling Debate Affects Mortgage Market
Chicago, IL (PRWEB) October 16, 2013 -- As the October deadline on the debt ceiling inches closer, the debate over voting to raise or default on the nation's debt is causing uncertainty in the mortgage market, which has been able to offer borrowers a low rate mortgage over the last year. While it is not clear whether or not Congress will vote to raise the debt ceiling, The Federal Savings Bank has been telling its prospective clients that it is having an obvious the discussions over default is having a negative influence on interest rates and the overall economy.
Economic influence
Stock market took a downward turn in the first week of October as the S&P 500 Index fell to the lowest level in a month after congressional members were grid locked in debate over the debt ceiling. The downturn was short-lived however, as the stock market cheered on Oct. 10 when lawmakers appeared to be making efforts toward negotiating on a bill to extend the nation's debt limit. As the deadline gets nearer, short-term influences over the vote will continue to cause volatility in the economy.
The Department of the Treasury released a report titled "The Potential Macroeconomic Effect of Debt Ceiling Brinkmanship," which outlined the potential consequences of defaulting on the nation's debt. Specifically, the report noted that a default is unprecedented and the full impact can't be accurately predicted. However, the department did recognize that a default would be devastating for the economy.
"Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse," the report stated.
The Treasury Department also compared the current debt ceiling debate to the same situation in 2011, where just the mere discussion had negative economic influences that lasted for months, including the downgrade of the nation's credit rating from AAA.
Mortgage market impact
The mortgage market would be impacted by higher interest rates, which would raise the cost of buying and owning a home. First-time home borrowers and those who were once able to get a low mortgage refinance rate would be forced to make higher monthly payments. This would mean that homeowners would have less disposable cash, restraining consumer spending.
Mortgage rates have remained steady during the federal government shutdown after Congress failed to pass a budget bill and while Congressional leaders are still in negotiations for a debt ceiling vote. A bill that would extend the debt ceiling limit for six weeks initially brought some confidence back to Americans and the stock market. However, President Obama rejected the idea, stating that Congress must pass a budget bill to reopen and fund the federal government and increase the debt ceiling without requiring other restrictions such as spending cuts or funding for the Affordable Care Act.
Borrowers, for now, are assured the current rates for a low cost mortgage are likely to hold if lawmakers decide to pass the debt ceiling. While the 2011 debate over the debt ceiling did have some economic consequences, Congress is not likely to default on the nation's debt and send the country back into recession.
Contact the Federal Savings Bank, a veteran owned bank, to explore mortgage refinance options.
The Perfect Mortgage Experience, The Federal Savings Bank, https://www.thefederalsavingsbank.com, 855-686-3883, [email protected]
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