I need clarification, if we offer discount (1% or better) to eomployees with condition that if employment ceases the rate will go up - how do you prepare your loan docs? With the full rate? Or the discounted rate? If we used the full rate on the note, but book at the lower rate it is not a variable rate transaction? But if we use the lower rate and change at termination of employment it is a variable transaction?

This is a variable rate loan. Disclose it with the discounted rate assuming they will not leave. You need to disclose the variable rate feature as explained in 226.18(f)(1) or (f)(2), as applicable.