The discount rate is the rate that an investor could earn if they were to invest money at a similar level of risk (compared with the riskiness of the mortgage). As the discount rate rises, the value of the mortgage (to anyone thinking of buying the mortgage from the original bank or mortgage company) goes down. This is because anyone buying the mortgage is buying the rights to receive the future mortgage payments from the person who borrowed the funds to buy a house. As the purchaser of a mortgage has to wait longer and longer for payments in the future, they are foregoing investment returns that they could make with their funds. Using those funds to buy a mortgage (future payment stream from the debtor) means they are foregoing other investment opportunities. As those opportunities become more lucrative (a higher discount rate), then the value of the future mortgage payments they will receive becomes lower and lower. The longer I have to wait to receive repayment, the less that repayment will be worth.

If you extend that argument logically to its extreme, think about the following: Would you rather have a suitcase full of cash today or in ten years??? Most would want the case today. Why? Because they can take the cash and invest it and use it to generate a return to live off of. However the longer they have to wait the less and less that suitcase is worth to them today. (if they have to wait forever then it is worth zero because they never get it). The degree to which waiting will affect my valuation of those future cash flows will depend on my discount rate (the rate at which I discount the value of those cash flows because I have to wait for them). If I discount them a lot (i.e., a higher discount rate) then they will be worth less to me. Hope that helps.