More may opt for mortgages tied to fixed deposit rates

The threat of rising interest rates is prompting more home owners to re-finance their mortgages by tying them to fixed deposit rates.

This means the repayment rate is directly related to the interest banks pay customers who deposit cash.

As any bank customer knows, deposit rates have been at rock-bottom levels for several years, but that can spell stability and lower costs for mortgage holders.

Fixing home loans to bank deposit rates is a relatively new option here, with only Bank offering the option.

Mortgages are usually pegged to fixed rates or float in step with the bank offered rate or swap offer rate.

Finance advisers told bank products could be the most sought after re-financing choice in coming months as the reality of higher interest rates hits home.

The cheapest fixed-rate package in the market is a Bank loan at 1.88 per cent a year for two years but that was recently raised from 1.68 per cent, a sign of the pressure rates are under.

Bankers say loans fixed to deposit rates start to look attractive in this environment. Bank are secured lending, said the bank's 18-month fixed deposit home loan package makes up 80 per cent of its new bookings.

Bank has an 18-month fixed deposit home rate, while OCBC offers a 36-month fixed deposit mortgage rate.

Bank package has a rate of 1.65 per cent a year with a two-year lock-in, but this rate could change.

Bank  expects its 36-month fixed deposit mortgage to be the most popular among all its mortgage products, as it offers the cheapest rates - now at 1.68 per cent a year, with a two- year lock-in.

Bank products have proved the most popular on online personal finance

"We can see that 48.8 per cent of our users are keen to take up either ; 48.5 per cent select fixed rates, with only 2.7 per cent going for floating packages

"In my view, having the certainty of fixed rates within the lock-in period is still advisable for many. After all, fixed deposit  rates - and hence the mortgage rates tied to them

Source: http://bit.ly/Moremayoptformortgagestiedtofixeddepositrates