What does the U.S. credit rating downgrade really mean for your mortgage and credit card rates?

People are blaming everyone from Congress as a whole to President Barack Obama in particular for Standard & Poor's downgrading the credit rating of United States from AAA to AA+ on Friday. But what most people still want to know is: How will the downgrade really affect me?

The loss of the United States' AAA credit rating won't affect the average person as much as will Standard & Poor's downgrade of Fannie Mae and Freddie Mac early Monday morning. The U.S.-government backed mortgage giants together own or guarantee half of all of the mortgages in the country; Fannie Mae reacted immediately by hiking up the rates they agree to pay lenders by about 0.15 percentage points, to about 4 percent; the increase is likely to lead to higher mortgage rates for new consumers.

People with adjustable-rate mortgages (ARMs), home equity loans, and home equity lines of credit (HELOC) may see their rates rise. But there's a little bit of hope, the Associated Press reports: Since many ARMs and HELOCs are tied to the federal funds rate and not to Treasuries, borrowers may be safe for a little while longer. The Federal Reserve, which sets the federal funds rate, has already announced that it plans to keep rates low for some time.

"The Fed is not likely to increase the federal funds rate anytime in the near future, especially if there's another problem with the economy as a result of the whole debt ceiling thing," Gibran Nicholas, chairman of the Certified Mortgage Planning Specialist Institute, told the Associated Press on Monday.

A more-urgent issue for many Americans is the interest rate on their credit cards. Though many people may remember receiving invitations with super-low rates not so long ago, banks right now are offering average annual percentage rates of 10.83 to 16.55 percent, according to Bankrate.com.

The interest rates on most credit cards are tied to the prime rate, which is in turn tied to the federal funds rate. Thanks to credit card reforms passed in 2009, current balances are protected from rate hikes, which means that only your new purchases would be at a higher interest rate.

It's worth noting that Standard & Poor's was the only one of the big three credit rating companies to drop the United States' credit rating to AA+, and they did so in spite of a $2 trillion math error (they're also the ones who gave Lehman Brothers a AAA rating just before the investment firm went under). After the math error was pointed out to them late last week, they re-wrote their press release to indicate political reasons, rather than financial reasons, for the downgrade, Business Insider reported on Sunday and President Obama confirmed Monday afternoon.

"United States received a downgrade by one of the credit rating agencies, not so much because they doubt our ability to pay our debt if we make good decisions, but because after witnessing a month of wrangling over raising the debt ceiling, they doubted our political system's ability to act," President Obama said on Monday afternoon. "The markets, on the other hand, continue to believe our credit status is AAA. In fact, Warren Buffett, who knows a thing or two about good investments, said, 'If there were a quadruple-A rating, I'd give the United States that.' I, and most of the world's investors, agree."

Given Monday's staggering 634-point drop, the markets may disagree with the President's assessment, but Moody's Investors Service backed the country's AAA rating on Monday, and Fitch Ratings released a statement saying that "agreement was reached on an increase in the United States' debt ceiling and, commensurate with its 'AAA' rating, the risk of sovereign default remains extremely low."






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