Risk-based pricing means lenders charge different rates to different borrowers based on how risky they think the loan is. The biggest factors are your LVR, whether the loan is for a home or an investment, whether you repay principal and interest or interest-only, and your loan size. Moving into a lower-risk tier, for example by getting below 80% LVR or switching to principal and interest, can lower your rate without changing lenders.
How risk-based pricing works
Lenders start with a standard variable rate, then apply discounts depending on which pricing tier your loan falls into. Two borrowers with the same lender can pay very different rates for the same product. In October 2026, the average investor variable rate was 6.89%, compared with 6.63% for owner-occupiers, according to Canstar, and the lowest advertised owner-occupier rates were around 5.79%. Much of that spread comes from risk-based pricing.
The factors lenders price
| Factor | Lower-risk tier (cheaper) | Higher-risk tier (dearer) |
|---|---|---|
| LVR | 80% or less, sharper again at 70% or 60% | Above 80%, often with lenders mortgage insurance |
| Loan purpose | Owner-occupied | Investment |
| Repayment type | Principal and interest | Interest-only |
| Loan size | Larger loans, often above $750,000 or $1 million | Smaller loans |
| Credit history | Clean record, no recent defaults | Defaults, arrears or many recent applications |
| Income and documentation | Full documentation, stable employment | Low doc or alternative documentation |
| Property | Standard house or unit in a major centre | Small units, some regional postcodes, unusual properties |
Not every lender prices every factor, and the size of each discount varies. See all the factors that affect your rate.
Why lenders price this way
- Expected losses. Loans with less equity, or on investment properties, are more likely to lead to losses if things go wrong.
- Capital rules. Banks must hold more capital against riskier loans, such as higher-LVR and investor loans, which costs them more.
- Competition. Lenders compete hardest for low-risk, large loans, so those borrowers get the deepest discounts. See why bigger loans get lower rates.
What it costs you
On a $600,000, 30-year principal and interest loan, each 0.10% difference in rate is worth about $40 a month, or about $14,000 over the life of the loan. Sitting one tier higher than you need to, for example because your LVR has fallen below 80% but your rate hasn’t been reviewed, can easily cost 0.10% to 0.30%.
How to move into a cheaper tier
- Get below 80% LVR, then 70%. Extra repayments, savings in an offset or rising property values all help.
- Ask for a revaluation. If your property has risen in value, a new valuation can confirm a lower LVR.
- Choose principal and interest if you don’t need interest-only cash flow.
- Clean up your credit. Avoid unnecessary applications and keep repayments on time.
- Consolidate loans with one lender to reach a larger-loan discount, if it doesn’t compromise your structure.
- Ask for a re-price. Lenders rarely move you to a cheaper tier automatically. Negotiate, using competitors’ rates for your profile.
Frequently asked questions
What is risk-based pricing on home loans?
It’s when a lender sets your interest rate according to how risky it considers your loan. Lower-risk loans, such as owner-occupied, principal and interest loans at 80% LVR or less, get bigger discounts off the standard rate than higher-risk loans, such as interest-only investment loans at 90% LVR.
Which factors put me in a cheaper pricing tier?
A lower LVR (80% or less, and ideally 70% or 60%), borrowing to live in the property rather than invest, choosing principal and interest repayments, a larger loan, a clean credit history and full income documentation. The more of these you have, the sharper the rate you can usually negotiate.
Can I ask a lender to re-price my loan?
Yes. If your circumstances have improved, for example your LVR has fallen or you’ve switched to principal and interest, ask your lender to review your rate. Lenders don’t usually re-price loans automatically, and a competing offer from another lender gives you leverage.
Sources
- Canstar, Average home loan interest rates, as at 2 October 2026
- APRA, Macroprudential policy settings, May 2026
- ASIC Moneysmart, Choosing a home loan
General information only. It does not consider your objectives, financial situation or needs and is not credit, tax or financial advice.