HUNDREDS of thousands of homeowners could be facing huge £500 rises in their monthly mortgage payments.

Almost 500,000 people who took out mortgages while rates were at rock bottom in 2020 are set to come off their five-year fixed deals this year.

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They can now expect to see a substantial increase in their monthly payments as mortgage rates are higher than five years ago.

Compare the Market is now warning these homeowners to shop around for a new mortgage deal before it’s too late.

Those who fail to move onto a new mortgage deal could end up paying even more as they’ll be automatically moved onto their lender’s standard variable rate (SVR) mortgage.

These typically have much higher interest rates than fixed or tracker deals.

Homeowners who took out five-year deals in 2020 will end up paying an average of £510 more per month if they’re moved onto an SVR, according to new analysis by Compare the Market.

On average their monthly payments would jump to a huge £1,227, based on an average mortgage debt of £178,523.

Over a year they’d end up paying £6,120 more.

However those who switch from an SVR to a new five-year fix could reduce their monthly payments by up to £301.

This means they’ll still be paying roughly £200 more per month than they were previously, but they’ll save thousands over the course of a year compared with staying on their lender’s SVR.

The average SVR rate was 7.13% at the end of March, Bank of England figures show.

Meanwhile the average rate for a two-year fixed mortgage is currently 4.6%.

It’s even lower for a five-year fix at 4.33%.

Rates were significantly lower in 2020, when they reached as low as 2.3%.

Those switching from an SVR to a five-year fix would save on average more than £3,600 over the course of a year.

A two-year fix would save you up to £3,290.

Different types of mortgages

We break down all you need to know about mortgages and what categories they fall into.

A fixed rate mortgage provides an interest rate that remains the same for an agreed period such as two, five or even 10 years.

Your monthly repayments would remain the same for the whole deal period.

There are a few different types of variable mortgages and, as the name suggests, the rates can change.

A tracker mortgage sets your rate a certain percentage above or below an external benchmark.

This is usually the Bank of England base rate or a bank may have its figure.

If the base rate rises, so will your mortgage but if it drops then your monthly repayments will be reduced.

A standard variable rate (SVR) is a default rate offered by banks. You usually revert to this at the end of a fixed deal term, unless you get a new one.

SVRs are generally higher than other types of mortgage, so if you’re on one then you’re likely to be paying more than you need to.

Variable rate mortgages often don’t have exit fees while a fixed rate could do.

What should you do if your fix is coming to an end?

Brokers recommend you start looking for a new deal three to six months before your current term ends.

As we’ve mentioned, it’s vital to avoid rolling on to your lender’s standard variable rate.

It’s worth noting that if rates improve then you’ll still be able to review your deal before you complete your home purchase.

You may want to talk to a broker to help you find the best deal.

They usually have access to rates not available to borrowers who apply directly, and they’ll keep you updated if rates improve.

You could ask family or friends to recommend a broker or use unbiased.co.uk and read the reviews.

If you want to go it alone, you could use prime comparison websites.

What’s happening with rates currently?

Experts have been warning buyers and those remortgaging to act quickly as the cheapest mortgage rates could soon disappear.

In the last couple of months home buyers have been in an ideal position as lenders have been slashing rates and engaging in a price war.

All the major lenders have been offering rates below the golden number of 4%.

But after the UK’s inflation rate soared higher than expected last week, that’s expected to have a knock-on effect on mortgage rates.

Brokers are now warning some of the cheapest deals could be gone by the end of the week.

Still, they’re not expecting mortgage rates to spike dramatically so it’s worth considering whether the timing is right for you.