Borrowers who take on a bigger mortgage are being offered cheaper home loans, while many smaller borrowers are forced to pay higher interest rates, claims an investigation by financial comparison website RateCity.
‘Affluent customers’, which the site defines as borrowers who can afford a mortgage worth more than $750,000, receive an average variable home loan rate of 5.32%, out of more than 100 lenders in RateCity's database. This is 0.42 percentage points lower than the average variable home loan rate for loans below $250,000.
According to the investigation, the major four banks also offer cheaper deals for bigger mortgages. CBA has the biggest spread, with 0.35 percentage points lower advertised variable rates for a home loan above $750,000 compared to a home loan below $250,000.
When Australian Broker contacted CBA regarding the claims, a spokesperson stated that they 'never offer comment on third party research'.
Michelle Hutchison, spokesperson for RateCity, says lenders have a greater financial gain from borrowers taking on more debt.
"It comes down to the fact that bigger home loans are worth more money to lenders so they will make larger loan sizes more attractive by offering cheaper rates. Just as if you were to visit a supermarket to buy a bottle of soft drink, the bigger the bottle you purchase the less you pay per litre. In much the same way, a lender is willing to accept a lower rate per dollar when selling a larger amount of money.”
"But just like a bottle of soft drink,” says Hutchison, “bigger isn't always better when it comes to borrowing."