What A Debt Default Could Mean For Your Mortgage

MINNEAPOLIS (WCCO) — If a deal is not reached over raising the federal debt ceiling, the real estate market would be put in an especially tough position.

WCCO-TV met with a mortgage consultant to see how Minnesotans pocket books’ could potentially be affected.

According to Ben Coulter, mortgage consultant with Metropolitan Financial Mortgage Company in Edina, both first time home buyers and those who have an adjustable mortgage rate could take a real hit.

Coulter said it comes down to the purchasing power of the buyer. Bottom line, with a big hike in interest rates, buyers are forced to cut back.

Think Economics 101: Bad credit means high interest rates, while good credit gets you the best rates.

“So, essentially, the U.S. right now has great credit, gets the best rates in the world. But if we default, or if the debt ceiling isn’t raised, then we’re going to go back down,” said Coulter. “We’re going to be paying more on credit cards and auto loans and you name it.”

Topping that list is your mortgage rate. Right now, Americans are paying around a 4.25 percent mortgage rate, but if America defaults on debt for the first time in history, things could change overnight.

“Going forward, worst case scenario, a lot of the things that we’ve been seeing and reading are anywhere from a half percent to three percent [interest hikes],” Coulter said.

Perhaps it’s easier to understand with a hypothetical:

In Minnesota’s Sixth District, where the median home value is around $240,000, a 3 percent hike in interest would ultimately mean a $400 increase per year in loan payments. That adds up to $20,000 over a lifetime.

Coulter said the fear of skyrocketing interest rates is very real to several of his clients.

“I’ve got a few people right now refinancing and want to get locked, want to make sure they get this taken care of before anything that happens with debt ceiling,” Coulter said.

He said he assures his clients, however, that he’s confident a deal will be reached.

“I expect that Congress is going to get this thing passed and we’re not going to have to deal with this nightmare that could happen,” Coulter said.

The easiest way the expert says he can explain it: If the U.S. credit rating is downgraded, then people don’t want to purchase our debt. As a result, the U.S. has no choice but to increase interest rates.

The impact of no deal reached would go beyond just mortgages. Americans could also see a dipping dollar, delayed social security payments and potentially sharp drops in the stock market.

  • Jake

    Like, DUH. The Tea Party is RIGHT. Federal spending has to be SLASHED NOW, just like the Minnesota state budget should have been. All of you living off the gov’t have got to get off the dime, especially those of you who are able bodied. The amount of welfare recipients, FOOD STAMPS, SSI insurance recipients needs to be cut in half, NOW. The military is already getting culled, time to kick out the illegals sucking up the good jobs, and put Americans back to work, even if it is only for $15 an hour.

    • WE

      Them JOBS are gone

      • Mamma

        WE, you may have to leave your couch to find one.

        • WE

          @ Mamma I Already have one. I work for the GREAT STATE OF MINNESOTA!!!!!

    • Take and Complain

      Before you continue talking, do a little research. Find all of the things you have gotten thanks to taxpayer money. Subsidized mortgage loan, subsidize property taxes, subsidized student loans/grants. The school you children go to, the roads you drive on. You don’t pay enough in taxes to cover the cost of all you get. Yet all you do is complaint. People who are poor, do not own a home, or go to college do not get all the subsidies you may enjoy today. You take and complain

  • Sam Maass

    The Democrats are trying to reduce the value of America, then buy us out, and then regulate us!

    • kieron

      Too late, hon. Where you been? ‘Pubs sold us down the river long ago.

  • Anti Tea Party

    Yes, those illegals are taking all the really good jobs that pay minimum wage….like farming, retail and the like. And those government programs you mentioned only count for approximately 5% or less of government spending. You have proven what an idiot you really are. Try doing a little research before posting your stupid and biased opinions.

    • Anti Anti Tea Party

      You cant be serious???? 5%???

  • Jason

    I have news for you folks, our credit rating is likely to decrease anyway. This is due to potential buyers of us treasuries not believing we can payoff our debt. This is going to happen especially if we raise the debt ceiling without SERIOUS budget controls. Namely savings that take decades to become reality if ever.

    • O-done-a

      They aren’t going to downgrade us because people aren’t buying our bonds. They are going to downgrade the U.S because of our balance sheet and our inability to square it. We need to square anywhere from 3.5-4 trillion of our budget. The “comfortable” debt ceiling was reached in May–remember.

  • mugwump

    When you have 35% of the people working for a living, and 65% voting for a living, anything is possible.

  • http://minnesota.cbslocal.com/2011/07/28/what-a-debt-default-could-mean-for-your-mortgage-2/ What A Debt Default Could Mean For Your Mortgage « CBS Minnesota

    […] the federal debt ceiling, the real estate market would be put in an especially tough position. [check out the report] Share this No comments […]

  • Larry

    Let’s do away with the debt ceiling and crush the last of our pride.

    Wow, Fellow Americans, are you proud of yourselves? We can’t pay or bills without taking out another credit card.

    Yeah, we are responsible.

  • Funky Munkey

    This article is so misleading, it’s funny. Let’s just say they were forced to raise interest rates on mortgages,credit card, etc. for argument’s sake.

    Well guess what, maybe nobody would take out loans and yup you guessed it, they would be forced to lower the rates back down. This article is goofy.

    The market will determine the rate, I wish these big brains would just let the natural/free market run things. The reason for all our troubles is that they just keep trying to control and manage everything

    • darby

      Rather simplistiic viiew of how interest works. Also incorrect.

    • Rico Suave

      Amen. The housing market is so depressed right now that jacking up rates would be an even bigger wet blanket on their business than, say, Barney Frank and Barrack Obama put together. They won’t do it. They can’t. You can barely give a house away these days. (thank you Barney, Bill, Chris, Janet and Jimmy) Of course it’ll affect a lot of other things but not real estate. Until housing prices are done cratering (and they’re not) rates will stay low.

      • O-done-a

        The stock market IS NOT the economy. The central banks are the ones loaning money to banks—so that banks can turn around and lend money to potential home buyers. Increase the interest rates on the central banks (due to the increase in bond interest) and yep, mortgage rates increase (new loans and adjustable rate mortgages). Credit card rates increase. The only lie out there. is that student loan rates will increase, theses are capped via legislation as something like 6.8%

    • O-done-a

      I wish I could live in your world. I’ll make this elementary ECON 101. We have to “sell” our Treasury bonds (backed by full faith and credit) to countries willing to buy our debt, paying them interest for financing our spending. Because the dollar is perceived as the most stable currency in the world (note: key word is perceived) countries are willing to finance our spending by purchasing bonds. But, if they begin to perceive they are not being adequately compensated for the risk of holding our debt, these countries will demand a higher interest rate to buy our bonds—which forces the U.S. to increase interest rates! It’s a central bank issue, not a real estate issue.

  • StraycatStrut

    Somehow getting anything done under the BO administration seems like a BigTime event. This should have been sealed weeks ago…. but our Big Spending Buddy in the White House was on tee time or in a fundraiser for #1. Would not surprise me if BO intends to further drag this country further in the pit. In any case I will vote for the Obama Plan! Let me see… can anyone tell me what it is first?

    • SO SAD

      Closing the loop holes on big business is only a part of it. But the repubs don’t want that because who’s going to line their pockets if they actually have to pay income taxes? Oh, but you don’t want to hear that. You want to take it out of SS and Medicare/Medicaid. The people who have actually retired and are collecting their SSI, which they have paid in mind you, should be cut short. They should live out on the streets, right, because they’re not going to be able to afford to their rent. What needs to be done is that the government workers actually need to do their jobs and evaluate the people who are on SS disability because you know that a lot of these “disabled” people are not actually disabled. They just can’t do the job they want to do. I know of a few that are collecting and working, but they won’t go after these people. Just the old.

      • StraycatStrut

        @ So Sad………Like GE……. profit $15 Billion…..Democrats gave special loopholes for taking profit out of the country. Income taxes paid by GE in 2010 totalled $0. Go look it up before you posture on your normal Democrat party view. Of course GE and BO are green buddies. So how is that working for you?
        Democrats also raised taxes under Clinton (Democrat) up to 85% can be taxable income on a family over $32,000…. Democrats “done do dirty deeds”…. again. The normal BS on BO posturing.

    • awblnew

      It’s been on the administration website all along, you fool.

  • Jim S.

    We should call the government every day to ask when we can expect payment on those loans. If they don’t answer, call their relatives.

  • Karen

    Politicians get your job done, now!

  • awblnew

    Most commenters here demonstrate the adage about a little knowledge being dangerous. Unfortunately, it’s not funny anymore.

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