How will the US Debt Ceiling Debate Decision Affect Mortgage Rates?

Over the past several weeks it seems like all we hear about on the news & at the water cooler is the US Debt Ceiling…. Will it be raised?  Will we default? 

You may be wondering…How this is all going to affect mortgage rates.  Well, this past week we saw conforming and FHA fixed mortgage rates rise for the first time in three weeks.  This week, mortgage rates have continued to be guided by the on-going U.S. debt ceiling debate.  

Currently it’s unclear in which direction Congress will vote.  It is Saturday afternoon, just a couple of days to go before Tuesday’s critical deadline and Democrats and Republicans remain deadlocked over whether and how to raise the US debt ceiling – which means we could see the US default on its debt obligations.

Congress must vote to either raise the current debt ceiling ($14.294 trillion) or take steps to reduce debt prior to the upcoming August 2, 2011 deadline…Until everything is settled, it is likely that mortgage rates may be unpredictable.

If Congress votes to make cuts in the budget, we should see mortgage rates fall.  Industry analysts have made it clear that if the United States defaults and the national debt is downgraded, mortgage rates could spike immediately.

On the other hand, if the debt ceiling is raised, we can expect mortgage rates to continue to increase because a higher debt ceiling would trigger further devaluation of the dollar.