Brokers have been encouraged to take extra care with walking their clients through the pros and cons of fixed rates, in order they don’t find themselves with a loan that becomes unsuitable when it reverts to the variable rate down the line.
While the big banks have the resources to offer attractive fixed rates, borrowers who are “lured” in with the low prices may regret their decision unless they carefully examine the variable rate product of the lender.
“We want to ensure that our clients are not trapped,” said FBAA managing director Peter White AM.
“Borrowers may eventually find themselves with a variable interest rate that is not the best for their particular circumstances, and they may be prevented from changing lenders due to lender fees, new valuation costs and maybe even LMI insurance.”
While fixed rates sometimes can be the best option, White urged brokers to ensure their clients understand phrases such as “caveat emptor” or “let the buyer beware”.
This not only underscores why people benefit from using a finance broker, according to White, but emphasises the importance of borrowers having access to non-major lenders which offer more choice in long-term products.
“Borrowers will never consider these options if they only look at the immediate fixed rate,” he said.
Further, while the introduction of best interest duty has been deferred, White highlighted it will still be coming into effect shortly and brokers need to be taking every action possible to ensure loans are not unsuitable.
“Banks [and mortgage websites] have no legal obligation to act in the borrowers best interest and if they can seduce you with a low starting rate they will, and they can whack you later,” he continued.
“It is imperative that borrowers obtain a thorough examination of their needs and desires for a mortgage that is not unsuitable for them now but more importantly in the coming years.”