Borrowers lured into low fixed interest rates by banks “trying to buy business” may regret their decision unless they also carefully examine the variable rate product of the lender, according to the Finance Brokers Association of Australia (FBAA).

FBAA managing director Peter White AM says while fixed rates can be the best option, brokers should ensure that clients understand “caveat emptor”, or “let the buyer beware”.

He said the big banks have the resources to offer lower fixed rates which look attractive, yet when it reverts to the variable rate the borrower may find they have a loan that is unsuitable.

“We want to ensure that our clients are not trapped,” he warned.

“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.”

He said this is the reason people should use a finance broker, and emphasised the importance of borrowers having access to smaller banks and second tier lenders that offer excellent long-term products.

“Borrowers will never consider these options if they only look at the immediate fixed rate.”

He said while the BID has been briefly deferred, it will come into force and brokers have always had an obligation to ensure loans are not unsuitable.

“Banks 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 said, adding that the same applies to mortgage websites.

“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.”