and will offer customers the option of fixed mortgage rates for the first time ever.

The mortgage and finance company of the Bank of Butterfield has written to mortgage holders saying that mortgage rates will be increased to nine percent as of March 1 in the new year.

The company intends to provide them with options in January.

Most other deposit companies contacted yesterday are not yet planning to raise mortgage rates.

Butterfield manager Mr. Richard Gibson said: "Worldwide short term and long term interest rates have climbed. We can't totally detach ourselves from our major trading partner, the US.

"The ramifications were anticipated in the Finance Minister's budget last February. With the removal of the ten percent foreign currency purchase tax, Butterfield and other mortgage companies are now operating in a freer market.

"With climbing rates overseas, our rates for mortgages have shifted. In other words, our cost of funds has gone up.

"We have a tiered rate right now, depending on the date of maturity, from 8.25 to nine percent. The rate would be reduced as the maturity date neared.

So that although your mortgage rate started off with a fairly high rate to begin with, it declined over time. So, we were actually offering the lowest mortgage rates in Bermuda.

"Our position is to get rid of the tiering system and come back to our existing clients with a series of products which will effectively fix their rates for periods in time.'' Deposits at Butterfield that have been locked in for five years or more at compounded rates are yielding 7.496 percent annually.

"That's very competitive,'' said Mr. Gibson. "But in order to ensure that, we provide the best deposit product and retain the funds in Bermuda for offering the higher rate.

"So obviously we offer the higher rate and we still have the cost of operation and everything else, so we've had to move our rates back to the original seven plus two percent variable mortgage rates, and manage our clients through that change.

"We will do that starting in January before the rates take effect and begin offering people fixed rate products. We will provide as much information as possible.'' Mr. Gibson said no decisions have yet been made as to exactly how the products will be structured, or what rates will be offered for fixed terms.

The bank would first have to determine its own costs.

He said that because interest rates were capped at seven percent until earlier this year, the banks would not offer fixed rates. Now that cap has been removed, such products could be offered.

But he said that an individual's mortgage payments may not necessarily go up, because the bank could spread out the payments over a different period of time.

Manager of Gibbons Deposit Company Ltd., Mr. James Gibbons, said that his company a month ago moved from sometimes writing 8.5 percent mortgages at 20 years to writing 8.5 percent mortgages at 15 years and nine percent mortgages at 20 years.

"Everyone will have to get in line with the nine percent eventually, unless it is a peak in US interest rates and they will come down from here,'' he said.

"It probably won't go any higher, because the return (the difference between the interest rate and the inflation rate, or the real growth in one's money) is at its highest historical level.

"It may go a little over, but it will eventually come back down. I think Butterfield is just ahead of everyone else.'' Somers Mortgage and Finance manager, Ms Betty Brown, said her company has no plans to make any changes at the moment.

She said: "We never lowered our rates from the nine percent we were charging, when other institutions did. We have no need to change them now.'' Bermuda Savings and Loan manager, Mr. Campbell McBeath, said that there were no plans for any changes at his firm.

Bermuda Home, the Island's largest deposit company, could not be reached for comment.