Have a mortgage? The debt fight affects you

If you somehow thought that the debt limit debate in Washington was one of those far-off arguments that has no impact on you, you might be surprised, especially if your home isn't paid for.

If there is no agreement on the debt limit, interest rates on U.S. financial securities will go up. That means so will rates on adjustable mortgages, as CBS News correspondent Dean Reynolds reports.

Juan Cruz says Congress is messing with his American dream.

He's made an offer on a $130,000 home for his young family and hopes to get a 30-year fixed-rate mortgage at 4.5 percent.

"I'm trying to stay within my means," said Cruz. "But if it goes up -- I mean, if the percentage rate goes up -- then it affects my outcome on that."

Rate increases are nearly certain if Congress cannot reach a deal and the U.S. defaults. Juan's bank told him interest rates could rise 2 percentage points, which would jack up his mortgage payments $163 a month.

Special report: America's debt battle

"Do you think Congress gets that?" Renyolds asked Cruz.

"I hope they get it," he said.

In Evanston, Ill., landlord John Nash is in an even more precarious position. With an adjustable-rate mortgage on a building he rents out, he's bracing for a several hundred-dollar monthly increase in payments if the stalemate in Washington persists.

"My concern is that rates will go up tremendously," he said, "which would put an added expense on me as a small real estate investor."

You can extend that concern about higher payments to 15 million homeowners with adjustable-rate mortgages who've been increasingly drawn to them lately.

The rates are popular. And why not? For example, a five-year A.R.M. -- in which the rate is fixed for the first five years and adjusts annually thereafter, is currently 3.25 percent -- about 1.3 percentage points below the traditional 30-year fixed rate loan.

A sweet deal -- as long as interest rates stay low.

Housing and real estate together have been the biggest drag on the U.S. recovery. Many worry that a U.S. default will slow things even more.

  • Dean Reynolds

    Dean Reynolds is a CBS News National Correspondent based in Chicago.