Banks snub smaller borrowers

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Property buyers who take on a bigger mortgage are being offered cheaper loans, while many smaller borrowers pay higher interest rates, according to the results of a recent investigation.

Financial comparison site RateCity recently conducted a study on the different offers being given to prospective mortgagees and found that bank customers who took on mortgages of more than $750,000 received an average variable home loan rate of 5.32% – 0.42 percentage points lower than the average rate for loans below $250,000.  

The investigation also revealed that the major four banks offer cheaper deals for bigger mortgages. Commonwealth Bank had 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.

Michelle Hutchison, spokesperson for RateCity, explained the results by indicating that lenders have more to gain financially when borrowers take on bigger debt.

"Bigger home loans are worth more money to lenders so they will make larger loan sizes more attractive,” Hutchison said.  

“Just like 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.”

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