Discounted Rate Mortgages
Your payments are based on a discounted rate set at a certain level below the Variable rate for a specific period of time, which means your payments may go up or down. For example, a 1% discount for 12 months off a Variable rate of 5% would mean a pay rate of 4% for 12 months. Sometimes these discounts are stepped over a period of time, for example, a discount of 2% in year one followed by a discount of 1% in year two. After the set period the Variable rate usually applies.
Pros
Provides you with lower payments in the early years to help with the cost of moving or setting up in your new home. A discount that gradually reduces means you do not usually face a significant increase in payments when the discount period ends.
Cons
If interest rates rise whilst you are on a discount, your payments may increase.