These mortgages are best for individuals who might be a little tight in the pocket book at the beginning of their mortgage terms but are likely to show financial improvement later on. This is primarily for first time buyers who may have a lower income than more established buyers. It gives a lower interest rate for the first couple of years, making it easier for first time buyers to afford purchasing their first home.
Warning should be heeded with these types of mortgages, pay close attention to the details of the mortgage. Many times the difference of interest from the discount to actual rate is added to the balance of the mortgage to be paid off later after the discounted period has ended. This can cause significant issues if the loan becomes larger than the value of the home or if you decide to move before the mortgage is paid off.
There are also early redemption charges on discount rate mortgages, which can extend out from the discount time frame and lock you into the standard rate that the lender currently has. In this case, it is even more important to make sure of all the details of the mortgage.