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Personal finance: My fixed-rate bargain has become a burden

WHEN interest rates dropped to 5.5 per cent earlier this month I had to grit my teeth. Like thousands of borrowers, I sorted out a long- term fixed rate mortgage in 1996 when interest rates were predicted to go much higher.

To begin with, they did. In July last year, the average mortgage rate was 8.95 per cent and my 6.99 per cent deal was looking good. The consensus at the time was that rates would rise over the five-year term of the mortgage and then drop again around the time of a general election in 2001 or 2002.

No one mentioned Europe. Perhaps we all thought it would go away if we ignored it. Yet interest rate convergence at 3 per cent across euroland is the single biggest factor affecting interest rates in the UK. By the time my fixed rate ends, in 2001, the UK may have joined the single currency.

Standard mortgage rates are now 6.95 per cent at most. After the next fall in rates, I will be paying over the odds.

A fixed-rate deal is a gamble against the rates but some people have already lost out very badly. In 1995, five-year fixes were selling at 9 per cent or more.

If you are stuck in an expensive five-year fix, find out what it costs to get out of the deal. You will probably be asked to hand over six months' interest payments to exit from the mortgage. If you have an interest-only mortgage then that's easy to work out. Contact the lender if you have a repayment deal.

You should also get quotes for a new deal - see the tables on page 26 for this week's selection - and work out how much (if any) cash you'll save by swapping.

Get a makeover

Do you want some valuable but free help to sort out whether you should remortgage your house, buy for the first time or even pay off the lot?

We are finalising a series of readers' mortgage makeovers in association with the independent mortgage broker, Chase de Vere. The deal is you tell us all about your financial situation and have your picture in the paper. In return you get hundreds of pounds' worth of mortgage advice and stand to save thousands off your loan.

You still have time to apply.

Send details to me at the e-mail address below or write in to Mortgage Makeovers at The Independent on Sunday, One Canada Square, London E14 5DL.