Fixed-rate loans are once again becoming popular as interest rates are on the rise. However, many borrowers still remember the trouble they got into after fixing rates in the aftermath of the currency crisis in 1992 and 1993.

At that time, many spent up to five years repaying loans at well over the odds. This time around, the damage is unlikely to be as large. Interest rates do have further to rise, which is reflected in the far higher fixed rates than variable rates. But when they do begin to come back down again, it cannot be by the same amount as the post-crisis cuts in interest rates seven years ago.

The main reason, of course, to fix an interest rate is peace of mind and security. Just knowing your mortgage payment cannot change for a set period is very reassuring for many, particularly those who feel they have borrowed just as much as they can afford.

Certainly if an increase in interest rates is going to make life difficult it is worth thinking about a fixed rate. At the moment, official inter bank rates are running at 4.5 per cent and as a result the standard variable mortgage rate from a lender is around 5.6 per cent. Many analysts believe interest rates could be 5 per cent at the end of the year and 5.5 per cent by the middle of next year. That would leave variable rates running at around 6.6 per cent next year on current form.

Of course, there is no certainty in this at the best of times. Oil crisis and inflation to name just two can make a huge amount of difference to the level of interest rates. Despite the fact that both can reduce economic growth, the European Central Bank is likely to raise interest rates if inflation takes off further and perhaps by more. But if these issues fall off the agenda, then it could raise rates by less than is predicted.

At the moment, a fixed-rate for two years costs 5.95 per cent from Irish Permanent and on current trends that could prove a good decision. A three-year fix from EBS costs 6.35 per cent, while a five-year one costs 6.7 per cent.

For a three-year fixed £100,000 loan over 20 years this would mean an additional monthly payment of £23. And for the five-year loan it would rise from a variable repayment of £713 to £757. So, only the individual borrower can decide if that is worth it.

But borrowers should also not forget that taking out a fixed rate can backfire in other ways. All lenders charge some form of penalty for getting out of a fixed rate early. This can be a serious hindrance if you get an unexpected bonus, an inheritance or other lump sum. The lenders claim penalties have to be charged because they enter fixed-rate funding commitments on the other side of those loans. However, this does not fully explain why some institutions impose harsher conditions than others.

The methods used to calculate penalties vary in complexity. Some institutions charge six months' interest while others charge three months. Others charge the difference between what your current loan would cost to repay and what the variable rate is. In broad terms, if you consider variable rates are going to continue falling, you might be advised to take the chance and pay the penalty. If, on the other hand, rates look as though they may rise further - as most observers think

- then you need to think carefully whether the penalty is worth paying.

When rates are rising, they may be able to net greater profit by lending it on and thus in these instances getting out of your loan should cost you nothing.

Next week: the differences between the lenders