Senate passes temporary debt ceiling extension - what the new December deadline means for mortgage rates

The Senate passed a temporary extension of the debt ceiling Thursday night in a 50 to 48 vote, giving the government enough funds to make it through December. The House of Representatives is expected to pass the legislation in the coming days, sending it to President Joe Biden's desk before the Oct. 18 deadline.

Senate Majority Leader Chuck Schumer said earlier in the day that Democrats and Republicans reached an agreement to keep the U.S. from defaulting on its debt until the new December deadline.

"The pathway our Democratic colleagues have accepted will spare the American people any near-term crisis while definitively resolving the majority's excuse that they lack the time to address the debt limit through the 304 reconciliation process," McConnell said on the Senate floor. "Now there will be no question, they will have plenty of time."

Before the Senate agreement, there were concerns that interest rates would rise if the debt ceiling was not increased. However, with the extension passed, interest rates will continue to hover near all-time lows. You can take advantage of the current rates to refinance your mortgage and lower your monthly payments. Visit Credible to find your personalized rate.

Will mortgage payments increase?

Biden announced at a press conference Monday that failure to raise the debt ceiling could cause interest rates to rise, as well as mortgage and car payments. However, how the debt ceiling affects consumers can be quite complicated.

"In the days ahead, even before the default date, people may see the value of their retirement accounts shrink." Biden said prior to the Senate's agreement. "They may see interest rates go up, which will ultimately raise their mortgage payments and car payments."

Treasury Secretary Janet Yellen previously warned of the economic impact of not raising the debt ceiling, which Congress now has until December to find a permanent solution to. Had lawmakers not come to an agreement, higher interest rates could've been a possibility if investors and financial markets showed a flight to safety. But this may not have impacted all mortgages. When homeowners take out a home loan, it's common to get a fixed-rate mortgage. Because fixed mortgage rates are set for the whole loan term, changes in the national average will not impact their payments. 

However, new homebuyers would be subject to higher interest rates and would either have higher monthly payments or would need to buy a more affordable home. Those with an adjustable-rate mortgage could have also felt the effects since their rate is usually set for a short term, such as five years, and then fluctuates based on the market average. 

If you want to refinance your mortgage and lower your monthly payments while rates remain low, visit Credible to find your personalized mortgage rate and see how much you could save.

HOUSING EXPERT: OCTOBER MORTGAGE RATES WON’T SEE DRASTIC CHANGE, BUT EXPECTED TO INCREASE

Experts warn of impacts of not raising debt ceiling

A report from Moody’s Analytics released on Sept. 21 showed the possible impact of not raising the debt ceiling. Had lawmakers not come to an agreement, it could've cost the U.S. 6 million jobs and taken out $15 trillion in wealth, triggering a recession similar to that of 2008, the report warned. This highlights the importance of Congress finding a permanent debt ceiling solution by the December deadline.

"This economic scenario is cataclysmic," the report, written by Moody’s Analytics Chief Economist Mark Zandi and Assistant Director Bernard Yaros, stated at the time. "Based on simulations of the Moody’s Analytics model of the U.S. economy, the downturn would be comparable to that suffered during the financial crisis. That means real GDP would decline almost 4% peak to trough, nearly 6 million jobs would be lost, and the unemployment rate would surge back to close to 9%.

"Treasury yields, mortgage rates, and other consumer and corporate borrowing rates spike, at least until the debt limit is resolved and Treasury payments resume," the report continued. "Even then, rates never fall back to where they were previously."

Previously, Yellen stated that the debt limit needed to be raised by Oct. 18. However, with the Senate’s agreement, the new deadline is Dec. 3.

If you’re interested in refinancing your mortgage while interest rates hover near historic lows, you can visit Credible to view multiple mortgage lenders at once and choose the one with the best option for you.

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What to expect for interest rates

While the debt ceiling standoff has been settled for now, a permanent solution must be found by December. If Congress raises the debt ceiling again, interest rates will likely see very little movement and will continue on their current course. However, the Biden administration is struggling to get all Senate Democrats on board with how to raise the debt ceiling. Senate Republicans are also at an impasse, saying Democrats must pass the vote on their own, giving them a few extra months to work on it. 

"Raising the debt limit comes down to paying what we already owe, what has already been acquired — not anything new," Biden said in a statement released by the White House Monday. "It starts with a simple truth: The United States is a nation that pays its bills and always has. From its inception, we have never defaulted."

In those remarks, Biden also warned that without a debt limit increase, interest rates could’ve gone up for mortgages, auto loans and credit cards and the country’s credit rating was at risk.

If you’re interested in refinancing your mortgage before Congress’ December deadline, visit Credible to get prequalified in minutes without affecting your credit score. You can also speak to a home loan expert and get all of your questions answered. 

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