Why you should lock in a mortgage rate now

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

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  By Pat Wellenbach, AP
  The threat of a government default or debt downgrade could cause mortgage rates to spike. Experts advise lock your rate now.

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By Pat Wellenbach, AP

The threat of a government default or debt downgrade could cause mortgage rates to spike. Experts advise lock your rate now.

Mortgage rates, which have been at historic lows for months, 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.

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."

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.

So far, the debt-ceiling fracas hasn't affected mortgage rates. The average rate for a 30-year fixed-rate mortgage for the week ended July 28 was 4.55%, 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% in the second quarter.

Borrowers who want to lock in low rates will 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.

•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.How the debt-ceiling crisis could affect other consumer rates:

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 from 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. "Let this add more urgency to your payment efforts."

•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 flood banks with cash, McBride adds, rates could fall even more.