Mortgage Rates : The Debt Ceiling Effect

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The United States will reach its legal $14.294 trillion debt limit today. By law, the U.S. Treasury may not issue new debt beyond the debt ceiling.

Congress is debating whether to extend the limit, or make immediate cuts to spending.

While it debates, mortgage rates sink.

The Second Extension Of 2011

The debt ceiling debate is not all-of-a-sudden. It's been ongoing since 2011 Fiscal Year budget passed in April of this year.

U.S. debt levels were near the ceiling at that time and the budget's projected $1.645 trillion deficit ensured the nation would exceed its legal borrowing limit sometime in 2011.

The date it actually happened was May 16. At the time, Treasury Secretary Geithner temporarily extended the nation's debt limit; citing "extraordinary measures" meant to prevent a U.S. government default.

The projected default date moved to August 2 and congressional leaders have been debating cuts-and-taxes since. An agreement is expected today.

Get a mortgage rate quote now.

Mortgage Rates Keep Dropping

The debt ceiling debate has been a boon to rate shoppers and home buyers -- especially in the jumbo market.

As Congress debates tax increases and spending cuts; and as rating agencies put the U.S. "on watch", mortgage bonds are improving, racing toward the highs set last November. 

It's an unexpected rally because sovereign debt concerns tend to lead bonds lower. In this case, though, Wall Street appears to believe Congress will reach a deal, and the global investor community agrees.

Furthermore, because a congressional deal is expected to feature large spending cuts, analysts are betting on an extended U.S. economic slowdown. This is causing equities to sell-off and bonds to rally.

What's bad economic growth is often good for mortgage rates.

Get Quoted For A Mortgage Rate

Since the prospect of a deal was first hinted Friday, mortgage rates have been improving. Conforming, 30-year fixed rates are down nearly 0.250 percent and are rapidly nearing the all-time lows set last November.

Get a mortgage rate quote now. Zero-cost loans are available and it's never too soon to save money.