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No Deal on Debt Ceiling May Mean Higher Mortgage, Loan Rates

Monday, July 11, 2011

WNYC

Rates on mortgages, car loans and certain types of student loans could rise if the White House and Congress don't come to an agreement on raising the government's debt limit.

"The significance of averting a default cannot be overstated," said Greg McBride, senior financial analyst at Bankrate.com. "Our livelihoods, our financial security is at stake in this game of debt ceiling chicken."

McBride said if investors believe the U.S. is at risk of defaulting on some of its payments, they'll demand higher interest rates on Treasury bonds, and that would have a ripple effect on other interest rates — including those at which consumers, small businesses and large corporations borrow money.

Interest rates on credit cards wouldn't necessarily rise, McBride said, but card issuers would more likely freeze or slash consumers' lines of credit if political stalemate continues through August 2, a date set by Treasury Secretary Timothy Geithner. 

The U.S. government already hit its $14.3 trillion debt ceiling on May 16. The federal government is now tapping federal employees pension funds for loans.

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