Basically all a discount rate does is offer a discount
from the standard variable rate (SVR) for a given period
of time.
Some lenders offer a normal term based level discount
rate such as a two year discount of say 1%. That means
your rate will be 1% less than your lenders SVR for a
period of 2 years. If their SVR increases then your
mortgage will increase proportionately. See the diagram
below for an example.
Please note the graph below is not accurate and is for
illustrative purposes only.
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Other lenders offer what is known as a stepped discount.
Which is a similar principle to that of a term based
discounted rate but instead of being level for the term
of the discount this rate will rise of a period of time.
An example of this type of product is a 3 year stepped
discount may operate on the basis of a 3% discount year
1, 2% discount year 2 and culminating and ending in a 1%
discount in year 3.

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