Discounts on standard variable mortgage rates have climbed as high as 140 basis points this year, according to the latest JP Morgan mortgage industry report.JP Morgan banking analyst Scott Manning said that as banks' cost of funds rose after the financial crisis, lenders made out-of-cycle variable rate increases to cover higher costs.With costs coming down over the past couple of years, there has been an expectation that lenders would make out-of-cycle rate cuts. Manning said lenders have not done this, preferring to offer higher discounts instead.JP Morgan estimated that the average variable rate mortgage discount had increased from 75 bps in 2012 to 100 bps today.The discount range has widened at the same time, with discounts between 40 bps and 140 bps.The principal of Digital Finance Analytics, Martin North, who co-authored the report, said the level of the discount depended on the type and size of the loan and the type of borrower.North said: "Households with high levels of net wealth and borrowers taking loans with low loan-to-valuation ratios are being offered big discounts, while first-home buyers get small discounts."There is also a skew of larger discounts for larger loan amounts [above A$500,000]. This makes sense, given that high mortgage balances reduce relative origination costs."In addition, higher loan amounts would typically require higher incomes, thereby creating more cross-sell opportunities."Manning said that, if current funding costs are maintained, over the next three years the reduction in the banks' cost of funds would be equivalent to a further 20 bps out-of-cycle rate cut.The caveat with this forecast is that recommendations of the Financial System Inquiry concerning bank capital levels and housing risk weightings could have an impact on mortgage portfolios.