Borrowers are set to pay more interest on their mortgages and loans after the central bank of the US declared an interest-rate rise of a quarter of a percentage point.

The increase in the US Federal Reserve’s federal funds rate, which was widely anticipated, was announced at 3pm yesterday.

Butterfield Bank was the first local lender to respond, stating that it would adjust its base rates on Bermuda dollar loans and mortgages by 25 basis points.

HSBC Bermuda said it would review the impact of the Fed’s decision. Clarien Bank did not respond to a request for comment by press time last night.

Butterfield’s increase will take effect immediately on consumer and corporate loans and from March 6 next year on residential mortgages.

However, Butterfield’s borrowers will not see their monthly repayments rise — instead the durations of their loans and mortgages will instead be lengthened.

“The dollar amount of borrowers’ monthly loan and mortgage payments will not increase, as Butterfield is automatically extending the terms of loans and mortgages to assist customers with the rate adjustment,” the bank stated.

“Customers who wish to increase monthly payments to maintain the current term of their loans or mortgages should contact the bank.”

Savers will not benefit from the Fed’s actions. Butterfield said its deposit rates would remain unchanged.

Butterfield said its Bermuda dollar base rate for residential mortgages and consumer loans would increase from 3.75 per cent to 4 per cent. The bank added that this was its first rate increase on mortgages and consumer loans in more than eight years.

The Bermuda dollar base rate for corporate loans will increase from 4 per cent to 4.25 per cent.

In response to this newspaper’s request for comment, a spokeswoman for HSBC Bermuda said: “HSBC is actively reviewing the impact of the Fed’s decision. Any impact on the bank’s lending and savings rates will be communicated through our usual channels.”

Bermuda financial institutions are under no obligation to follow the lead of the Fed. However, the federal funds rate is one of the factors they consider when setting their own rates.

And there could be further interest-rate rises in the pipeline. The Fed signalled yesterday that it expects to make three more quarter-point increases during the course of 2017, as US economic growth picks up speed and inflation rises.

However, its forecasts are not always accurate — a year ago the Fed was indicating four rate hikes in 2016 and there turned out to be only one.

Wall Street had been expecting only two hikes next year and the indication of faster rate of tightening provoked a sell-off. Bermuda insurers were down across the board, with XL shares falling more than 2.1 per cent, while several others were down more than 1 per cent, including Arch Capital, Aspen Insurance Holdings, Chubb, Maiden Holdings and White Mountains.