Mortgage rates have nowhere to go but up!

If you’re considering buying a home or planning to refinance, here’s some advice: Lock in a mortgage rate. Now.

Mortgage rates could shoot higher if lawmakers fail to reach an agreement to raise the debt ceiling by Tuesday, says Greg McBride, senior financial analyst for Bankrate.com.
But even if default is averted, there’s little downside to locking in a rate.
A government default would cause Treasury bond prices to plummet, and yields would rise. “Uncle Sam’s borrowing rate is the baseline from which all consumer and business borrowing rates are determined,” McBride says. “If Uncle Sam’s costs go up, borrowing costs go up for everybody.”
And even if the default is short-lived, the ratings agencies have signaled they’ll downgrade U.S. debt. That would also drive up consumer rates, because the government would be forced to pay higher rates to bond investors.
“Consumers might look back on this period six months from now and regret it if they don’t take action,” says Mona Marimow, senior vice president for LendingTree, a loan comparison website.
Mortgage rates are at historic lows and unlikely to go much lower. The average rate for a 30-year fixed-rate mortgage for the week ended July 28 was 4.55 percent, only slightly higher than a week earlier, according to Freddie Mac. Rates slipped on Friday after the Commerce Department reported that the economy grew at a lower-than-expected 1.3 percent in the second quarter.
Borrowers who want to lock in low rates need to act fast, says Keith Gumbinger, vice president of HSH, a publisher of mortgage data. “If the government does default, it’s going to be hard to lock in an interest rate,” he says.
How the debt-ceiling crisis could affect other consumer rates:
• Credit cards. Interest rates would likely rise, although not right away, McBride says. Credit card issuers are required to give you 45 days notice before they raise your interest rate.
Most credit card interest rates are tied to the prime rate, which wouldn’t be affected by an increase in Treasury rates, he says. However, card issuers would likely increase the margin they add to the prime to calculate the rate they charge consumers, he says.
You can protect yourself from a rate hike by paying off your balance – which makes sense even if the government doesn’t default, McBride says. “I don’t think there’s ever a good reason to keep a high credit card balance,” he says.
• Certificates of deposit. Savers who hope that higher Treasury rates will boost low CD rates will be disappointed, McBride says. Those rates won’t improve until banks increase lending, and that’s not going to happen if there’s a downgrade or default, he says. And if a default causes safety-seeking investors to flood banks with cash, McBride adds, rates could fall even more.

© Copyright 2011 USA TODAY, a division of Gannett Co. Inc., Sandra Block.