Yes, it should be legal to lower a mortgage interest rate for more expensive mortgages. Banks should be able to offer a lower interest rate if it meets their business models. Although the people with smaller mortgages might complain, there is nothing really unfair about offering lower rates when more money is borrowed.
Yes, it should be legal to lower the mortgage interest rate, if the borrower is borrowing a lot of money, because if the person is borrowing a lot of money, they likely have more money to put down on the house to begin with. That means that the person borrowing the money is less of a risk to the bank, and that means that the bank will likely make a profit from them. It is a fair business decision for the bank.
I feel that the amount borrowed should not be a factor in lowering the rate simply because the housing markets fluctuate depending on the geographic location of the home therefore the borrower in New York for instance would need more than someone buying a house in the state of Texas.
The government should never make it legal to lower the mortgage interest rates. As this is the right of the buyer who has entered into the agreement. Also with the factor of their other monthly payments & household expenditure fluctuating unexpectedly, over long periods of time, you can not put your finger on exactly how much their expenses will change. So in fact interest rates on their mortgage can be part of their financial security which everyone has a right to.