Interest rates could go up amid national default

July 29, 2011 7:03:13 PM PDT
ny financial experts are predicting a government default would send the economy into another tailspin. Used as an example is the Dow Jones Average which fell almost one hundred points on Friday and is off by more than 600 for the week.

For those who thought the economy was recovering, word that a government default could send interest rates skyward brings fears of yet another recession.

"If interest rates increase, it may put some of us into a position of not being able to meet mortgage payments again," said shopper Elizabeth Valera, "or not being able to handle the basic things we need to pay for in life."

According to mortgage expert Ed Craine, the housing market appears to be the likely first victim of a national debt default.

"Anything that creates headwinds for teh housing market, which higher interest rates and payments would do, is going to make it more difficult for that housing recovery we're all hoping for," Craine said.

If Congrses doesn't raise the debt ceiling by the deadline next week, Craine says rates for a 30-year fixed mortgage could go up half a percent, which could raise monthly house payments by as much as a few hundred dollars.

Home owners who are locked into their rates would have a slightly higher credit card interest rate that lowers the amount of money available for their mortgage payment, according to Craine.

A government default could also hurt college students.

"It makes it harder to pull out a loan," student Michael DiGrande. "It makes it more difficult to just get started with our lives, I think."

It's also put the Pell Grant program that many college students rely upon for financial aid in jeopardy.

But amid the talk about what would happen if Congress doesn't raise the debt ceiling is another theme that keeps popping up: Some think Congress is bluffing.

"I think this is political theatre," said corporate attorney Ed Grenville. "Behind the scenes, they're going to strike a compromise because I think everybody loses if we don't agree to increase the debt ceiling."

Still, experts suggest a compromise is farther away than ever, and that makes some people angry.

"It's a little bit petty," said shopper John Hunt. "I think they are, a little more worried about being right and about getting their way than they are about the American people."


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