The federal government ran a $1.992 trillion budget deficit in fiscal year 2026, the Treasury Department reported October 16. That is about $217 billion, or 12%, more than the year before, and the 25th consecutive year Washington has spent more than it collected. For households, the borrowing shows up in mortgage rates, loan costs and a national debt that has now passed $40 trillion.
Key Takeaways
- Federal spending reached $7.396 trillion in fiscal 2026, up about 6%, while revenue rose about 3% to $5.403 trillion.
- September 2026 ended with a $26.9 billion deficit, a reversal from the $197.9 billion surplus in September 2025.
- The average 30-year fixed mortgage rate stood at 7.40% on October 15, compared with 6.27% a year earlier.
- The Committee for a Responsible Federal Budget reported that federal interest costs passed $1 trillion during the fiscal year.
- Gross national debt reached $40 trillion during fiscal 2026, according to the same group.
Washington Borrowed About 27 Cents of Every Dollar It Spent
The fiscal 2026 numbers are easier to grasp at kitchen-table scale. The federal government took in $5.403 trillion and spent $7.396 trillion between October 1, 2025, and September 30, 2026. That means borrowing covered roughly 27 cents of every federal dollar spent.
Revenue did grow, by about 3%, but spending grew about twice as fast. Because federal outlays were already far larger than receipts, a 6% rise in spending added far more dollars than a 3% rise in revenue brought in. The result was a deficit nearly $2 trillion deep, up from $1.775 trillion in fiscal 2025.
The final month was the most unusual. September often ends in surplus because quarterly estimated tax payments from individuals and businesses come due. September 2025 had a $197.9 billion surplus. September 2026 ended with a $26.9 billion deficit, about $8 billion smaller than economists expected but still a sharp swing from a year earlier.
Federal Borrowing Shows Up in Mortgage Payments
Most households never pay a direct bill for the federal deficit. They feel it through interest rates. When the Treasury borrows nearly $2 trillion in a year, it has to sell that much new debt to investors on top of refinancing what is already outstanding. More supply generally pushes Treasury yields higher, and the 10-year Treasury yield is the main benchmark for mortgage rates.
The connection is visible now. The 10-year yield was 5.19% on October 14, after recently reaching its highest level since 2002. Freddie Mac’s average 30-year fixed mortgage rate was 7.40% for the week of October 15, up from 6.27% a year earlier and near its highest level in about three years.
For a family buying a home, that difference is significant. Freddie Mac estimates the monthly principal and interest payment on a $300,000 mortgage at about $1,896 at a 6.5% rate and about $2,098 at 7.5%. That is roughly $200 more every month, or more than $70,000 over the life of a 30-year loan.
Many factors move Treasury yields, including inflation and Federal Reserve policy. But heavy federal borrowing gives yields less room to fall, even when other pressures ease.
Credit Cards and Car Loans Feel It Differently
Not every household loan reacts to the deficit the same way. Credit card rates follow the Federal Reserve’s short-term policy rate more than Treasury yields. The Fed raised rates in September to fight inflation, which feeds directly into card APRs.
The deficit still matters for those rates over time. Large, persistent deficits can make the Fed more cautious about cutting rates, because federal spending adds to demand at a time when inflation is already above target. Auto loans, which usually run three to seven years, fall somewhere between credit cards and mortgages and are affected by both Fed policy and intermediate-term Treasury rates.
Interest on the National Debt Now Tops $1 Trillion
The fastest-growing cost in the federal budget is interest on past borrowing. The Committee for a Responsible Federal Budget, a nonpartisan fiscal policy organization, said interest costs passed $1 trillion in fiscal 2026. It also said gross national debt reached $40 trillion and debt held by the public grew to about the size of the entire U.S. economy.
The group’s president, Maya MacGuineas, described the deficit as the “largest deficit in our history outside of a war or recession.” Every dollar spent on interest is a dollar not available for other federal programs, and interest costs rise when higher rates apply to new and refinanced debt.
Federal budget pressures have also been driving the fiscal debate in Congress, where the House passed a stopgap funding measure to avoid another government shutdown earlier this year. Short-term funding fixes keep the government running but do not change the long-term gap between spending and revenue.
What Fiscal 2027 Looks Like
Fiscal year 2027 began October 1, 2026, and no major change to the spending and revenue trends has been announced. The Committee for a Responsible Federal Budget has called for bringing deficits down to 3% of GDP, about half the current level, which it says would stabilize the debt relative to the economy.
For households, the practical takeaway is to plan around borrowing costs staying near current levels. Families considering a home purchase, refinancing or a large financed purchase in the coming year should not count on a quick drop in rates while federal borrowing remains this high.
FAQs
How Big Was the U.S. Budget Deficit in 2026?
The federal budget deficit was $1.992 trillion for fiscal year 2026, which ran from October 1, 2025, through September 30, 2026. That is about 12% higher than the $1.775 trillion deficit in fiscal 2025.
How Many Years in a Row Has the U.S. Had a Deficit?
Fiscal 2026 was the 25th consecutive year the federal government ran a deficit.
How Does the Federal Deficit Affect Mortgage Rates?
Larger deficits mean the Treasury sells more debt, which tends to push Treasury yields higher. Mortgage rates follow the 10-year Treasury yield closely, so heavy federal borrowing can keep mortgage rates elevated.
How Much Is the U.S. National Debt in 2026?
The Committee for a Responsible Federal Budget reported that gross national debt reached $40 trillion during fiscal 2026.
How Much Does the U.S. Spend on Interest on the Debt?
Federal interest costs passed $1 trillion in fiscal 2026, according to the Committee for a Responsible Federal Budget.
