Our next contestants on the Interest Rate Game are John and Mary Ryan, a couple from Dublin with a five-year fixed-rate mortgage taken out three years ago at 8.5 per cent. Tonight, with just two years to go on the fixed-rate term and an outstanding balance of £80,000, they'll try to determine if it's financially advisable to terminate their fixed-rate contract and switch to a variable rate mortgage.

Along the way, they'll meet penalty payments and in some cases, complicated formulas, before letting the numbers determine if they've won the Interest Rate Game! Screen fades to black, commercial begins.

Whether they know it or not, individuals taking out variable or fixed-rate mortgages play the Interest Rate Game every day. Fixed-rate mortgage holders, who repay at a set interest rate, hope that rates remain the same or move higher while those with variable rate mortgages hope rates move downwards, thereby reducing their regular payment amount.

However, even professional economists and investment specialists trained to pick up on the most subtle economic indicators often have difficulty guessing the next move of interest rates.

Experts believe interest rates will remain low. Mortgage-holders who took out fixed-rate contracts when rates ranged from 8 to 14 per cent, are not doing well compared to their variable rate counterparts. At the time they entered the contracts, they were getting a good deal, but few foresaw the drastic decline in interest rates over the following years.

According to the Department of the Environment, of the 61,006 mortgages sold in 1996, 31,537 purchased fixed-interest rate loans.

Even though fixed-rate mortgage holders have the comfort of a known payment amount each month, the reality is that many now find themselves trapped in contracts which require them to pay far more than those with variable repayments.

But while these mortgage-holders' first instinct may be to switch to a variable rate mortgage, they should be aware that breaking a fixed-rate contract can be costly.

Every mortgage is an individual contract with a lender and your particular circumstances will be determined by the wording of the contract.

In general, four areas should be examined before contemplating a switch: the penalty for breaking the contract; the period remaining on the mortgage; rate/ payment compared to a variable rate mortgage; and the outstanding balance on the mortgage.

Under the Consumer Credit Act, each bank and building society must inform customers of the cost of breaking the fixed term whether it is based on an interest calculation, flat fee or both and any additional charges.

It is uncommon for a penalty to be incurred when moving from a variable to a fixed rate but standard when moving the other way. Each lender determines its own penalty formula for breaking a fixed-interest rate contract.

Many base this formula on the cost they incur when the mortgage-holder decides to pay early. This is because a fixed-rate mortgage is a double-sided contract in which the bank lends to the borrower and then borrows matching funds at a lower rate from the market (government bonds) or its customers through fixed-rate deposits.

Therefore, the lender still must meet its commitment to the depositor from which it borrowed funds even when a fixed-rate mortgage holder decides to repay early.

Penalty fees are a way of funding the loss. "Lenders may assign a number of penalties: a pre-payment penalty of either a fixed sum like three to six months interest or they'll use a yield maintenance formula in which they estimate the loss to them for the remaining length of the mortgage," says Mr Richard Eberle, managing director of REA mortgage services. Penalties are determined depending on the specifics detailed in loan documentation.

"Institutions over the years use different figures. It's very difficult to know the cost without looking at the loan documents. When people were buying fixed-rate mortgages a few years ago the banks were not great in saying what it will cost to get out of them but they've gotten better about it," says Mr Eberle.

Some lenders do not apply a cost of funds rule. For example, many building societies prefer to charge a penalty based on a number of months' repayments. However, this does not always work out as less than a cost of funds calculation.

In some cases, lenders will waive the penalty if the borrower sells the property and transfers the unexpired fixed portion to a new loan. However, if the loan is terminated completely the penalty will apply.

When the loan term remaining is short, penalties tend to be higher, reducing the benefits of moving to a lower, variable-rate mortgage.

The outstanding balance on the mortgage is also a determining factor as all lenders' calculations include the outstanding amount of the loan.

Although those taking out fixed-rate mortgages a few years ago may be unhappy with their present situation, fixed-rates mortgages are regaining popularity in this low-interest-rate environment. "Now is a time we're encouraging people to think about fixing their rates," says Mr Eberle.

Two- or three-year fixed-rate mortgages are suitable for individuals who prefer a fixed outgoing amount over time or those who cannot financially tolerate a sudden interest-rate hike.