Discount Rate Mortgages
Discounted Rate mortgages are offered by mortgage lenders to tempt new borrowers and represent a discounted rate compared to their Variable Rate Mortgages for a set period.
As with a standard variable rate mortgage, your payment will rise and fall with the current interest rate, except, you'll be paying less! Once the agreed period of your discounted rate expires, you will automatically switch to the lenders variable rate.
Its advisable to check what the lenders reputation has been for vaiable rate mortgages, as if they are more costly than most lenders, you may end up paying over the odds once your initial term has expired.
Typically the rate is lower for new borrowers than it is for existing customers of the lender. To counter this you should look to switch mortgages, once your discounted period has expired, of course you need to ensure that there are no redemption penalties in your small print. In some case the redemption penalties last longer than the discounted period, however if this is the case they often last shorter than the equilavent fixed rate mortgage redemption period.
Advantages
You get a better rate, than most other mortgage deals.
When the intial period expires, you can move to another deal. In general its recommended that you do not agree to a term of more than 2 years.
Disadvantages
You are tied in for a set period as agreed with the lender, should the interest rate rise, there is nothing you can do.