Everything To Know About Debt Ceiling Mortgage Rates

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When you're a first-time homebuyer, factors that affect your mortgage, like the US debt ceiling, can seem pretty complicated.

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What're debt ceiling mortgage rates, anyway, and how does the debt ceiling affect mortgage rates? What's the government doing to deal with the situation? If you're in the market to buy a home and are wondering how the debt ceiling will affect your mortgage, here's what you should know.

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What's The Debt Ceiling?

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The maximum amount of money that the United States can borrow by issuing bonds is called the debt ceiling or statutory debt limit. The provision was created under the Second Liberty Bond Act of 1917.

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Now, remember that the money our Treasury can borrow is to pay off its legal obligations like tax refunds and social security payments. Yep, that means once the US hits this ceiling, it could potentially affect your elderly relatives' social security checks.

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In January, the US touched the current limit of a whopping $31.4 trillion. It puts the federal government in a real pickle because they sure-as-heck can't increase the number on outstanding debts. This situation makes it a whole lotta complicated to pay off the country's dues.

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But why is it so important? That's because the government becomes unable to pay off its dues if the ceiling isn't raised. And that can lead to a default, causing major economic trouble for both the US and the rest of the world. So, what does the country do? Every couple of years, the two major parties sit down to decide by how much they'll raise the debt ceiling.

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How The Debt Ceiling Affects Your Mortgage Rates

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Let’s have a look at the relationship between the debt ceiling and mortgage rates.

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The ceiling itself doesn’t directly influence debt ceiling mortgage rates, but its consequences on the long-term economy could inflict catastrophe, chaos, and mayhem on rates. One possible consequence of our country reaching the debt ceiling is that it could take a toll on investor confidence — and you know that's super important. This will snowball and eventually lead to changes in debt ceiling mortgage rates.

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Even when our two biggest parties try coming to an agreement on what to do with the debt ceiling, it leads to continued delays. That'll mean greater uncertainty and pressure on debt ceiling mortgage rates. All of this means that you, as a homebuyer, will end up dealing with the mess in the form of higher debt ceiling mortgage rates.

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Oh, and not so fast. Before you consider extending your lease at the place you've rented out, remember that all this affects rent prices too. Come on, landlords have a mortgage to pay, too!

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What Happens To Mortgage Rates If The Debt Ceiling Is Raised?

As a potential home buyer, you may wonder when all of this can wind up affecting your debt ceiling mortgage rates. Things'll come back on track when the good ol' Democratic and Republican Parties come to an agreement and the country is able to raise the debt ceiling.

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So far, the US has always managed to save itself from hitting the ceiling. Though you'll want to note that it did reach the borderline in a couple of instances, and those brought about a barrage of economic consequences.

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As concerns of a default cool off and stability starts rolling in over the next two months, you can expect consumer confidence to go up. Plus, debt ceiling mortgage rates will go down as well, so you can take a sigh of relief.

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Alternatives to Using a First-Time Homebuyer Loan

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First-time homebuyer loans seem pretty attractive in a time when mortgage rates are higher for first-time buyers, but they're not your only path to homeownership. Check out some of these options if a first-time homebuyer loan seems inaccessible:

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• Conventional Mortgages: Sure, these loans aren't exclusive to first-time buyers, but you can snag some pretty competitive rates if you've got a strong credit history. These mortgages come with some pretty great flexibility too, in case you'll need to sell.

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• Co-Buying: Now that mortgage rates are higher for first-time buyers, partnering with a family member or friend to purchase a home can ease the financial burden and provide additional options.

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• Rent-to-Own: This arrangement allows you to rent a home with the option to buy it later, offering flexibility and time to save for a down payment. It saves you the hassle of moving to a new place entirely.

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• Work with a Mortgage Broker: When you're new to the market, finding competitive rates is tricky considering how mortgage rates are higher for first-time buyers. Mortgage brokers are market savvy professionals who know how to spot a good deal.

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• Explore Local Programs: Many states and municipalities offer unique homeownership programs with down payment assistance or other perks. Local programs can be a valuable resource for those looking for extra support in the home buying process.

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What'll Happen If The Federal Government Does Not Raise The Debt Ceiling?

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Since we've never really hit the debt ceiling yet, you're probably wondering what happens when we do? No one knows for sure, but economists predict that the following can happens if the federal government fails to raise the debt ceiling:

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• Government Service Slashes

If the U.S. fails to pay against the deadline or goes into default,the government will have no choice but to come up with extremely difficult decisions to make and implement them as well.

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The law will postulate the U.S. to continue paying for prerogative benefit programs such as Medicaid and Social Security. At the same time, it will also deny the government’s capacity to acquire or pledge in order to pay for the privileges.

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Even granting the most voluminous cuts you can imagine to national unrestricted funding, the government would have to consider re-prioritize the expenditure and likely put a stop to many important welfare programs.

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• Spiked up Interest Rates

Picture this: the whole country's financial markets are closely looking at whether or not the debt ceiling will go up. When it doesn't and the country slips into default, there's going to be a lot of uncertainty. The Treasury will need to pay bigger interests on their bonds so that investors don't sell them off. When this happens, debt ceiling mortgage rates grow, affecting the housing market and people who just want to buy a home.

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And when debt ceiling mortgage rates become unaffordable for buyers, it'll drag down the demand for homes and slow down a housing market that's still recovering.

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• Makes Refinancing Your Mortgage Difficult

Oh, and it's not just new homebuyers taking the brunt of it all. These higher debt ceiling mortgage rates make it impossible for the average homeowner to refinance their mortgage. After all, higher debt ceiling mortgage rates mean that you don't get as many savings from refinancing your home, so the whole option of refinancing your home becomes a no-go.

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This can keep you from accessing lower rates and potentially bringing down your mortgage payments.

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What Happens If the U.S. Defaults on Its Debts?

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The sources say that there are narrow chances of the U.S. defaulting on its debts as the lawmakers will try to contribute in their best efforts to get an extension, suspension, or rise in the debt ceiling that's affecting mortgage rates.

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Needless to say, there's always the slightest possibility that the US may default. If that happens, it'll be a huge blow for lenders, consumers, investors, and homebuyers alike.

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Bottom Line

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The debt ceiling is the current limit on how much the US can borrow to pay off its dues. When it touches the limit before it's raised, it could end up defaulting, and that's bad news for borrowers and homebuyers.

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Debt ceiling mortgage rates are usually higher because of all the uncertainty, and it makes getting a mortgage pretty darn expensive.

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