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The Looming Debt Ceiling and How It Could Affect You

May 25, 2023


Whether you’ve been viewing news broadcasts, social media feeds, print, or web articles, you’ve probably noticed a lot of talk about the impending debt ceiling. Many people wonder what the debt ceiling is and how it could affect them. Here is a brief explanation.

Breaking down the debt ceiling

The federal government works on the same principles from which most basic household budgets work—money in versus money out. Money comes in from tax revenue, which goes out to things like Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. Tax revenue covers only about 75 cents of every dollar the government spends. The rest must be borrowed.

The debt limit (ceiling) is the total amount of money the United States government is authorized to borrow to meet its existing legal obligations. When we approach that limit, Congress and the White House must come to an agreement on whether to borrow more to finance its debts. Since 1960, the government has gone to Congress and raised or altered the debt ceiling 78 times. The debt ceiling is a complex and contentious issue that often sparks intense political debates and negotiations, as it involves crucial decisions about fiscal responsibility, government spending, and the overall financial stability of a nation. 

What will happen if the government can’t come to an agreement?

Like with any budget, if you can’t borrow enough to pay your debts – you must prioritize your spending, and some bills may be paid late or not at all. So how will the government decide what gets paid and what doesn’t? Well, that answer is as clear as mud because we just do not know. A failure to raise the debt ceiling would be a historic first-time event. The federal government makes billions of payments every day – and our system is not currently set up to pick and choose which gets paid – making that outcome untested and risky.

So, what could be affected?

One option in this scenario would be to keep paying bills in order as tax money becomes available. So someone expecting a Social Security payment on June 2 instead might get paid on June 3 or June 5. The longer the impasse drags on, the more those unpaid bills pile up, and the later the payments might get. This can have major repercussions for those depending on state benefits. There is not currently a road map set to deal with this situation.

As a consumer, if you don’t pay your bills on time, your credit score and, as a result, your rates can go up. The same can happen to the government. This could have wide-reaching impacts on our global presence and on things like credit card and mortgage rates for consumers.

The Real Estate market will be one of many areas affected. We could see interest rate volatility, or the possibility of funds being halted for government-backed loans such as VA, USDA, and FHA. This may happen until an agreement is reached, the debt ceiling is raised, and the government is not shut down. Read more about how mortgages might be affected. 

Debt Ceiling Default vs. Government Shutdown

To be clear, there is a difference between hitting a debt ceiling and experiencing a government shutdown. A government shutdown occurs when Congress cannot agree to authorize the required 12 spending plans for the next fiscal year. While that has happened in the past, it differs from our current situation. In a government shutdown, obligations like social security, Medicare, and more are not at risk.

That may all sound scary, but we plan to look at this with a level head and work within the situation as it develops. At Homestead Financial Mortgage, we plan to continue doing business as usual while keeping our Loan Advisors up to date on market changes, ensuring that we can help you stay in the know. Together, we can continue to make the American dream of homeownership achievable.

If you still have questions or concerns, please don’t hesitate to reach out. We would love to have a conversation with you to provide reassurance that now is still a good time to buy, sell, or refinance.

"By being open and recognizing our strengths and weaknesses, we can see opportunities for growth and ways to help each other."

- Jayson Hardie on Growth

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