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Discover Home Equity Loan | Wealth

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While Discover is best known for its credit cards, the bank offers a range of financial products and services, including home equity loans.

Home equity loans can be a useful way to cover major expenses by allowing you to borrow against the equity in your home. However, not all lenders offer the same rates, fees or loan terms. That’s why it’s important to compare lenders and choose the one with the best rates, as it can help you save money over the life of your loan.

Read on to find out whether Discover is the right loan provider for you.

Best for Low Fees

Discover earned our top spot among best home equity lenders for its low fees.

Unlike many term loan providers, Discover does not charge loan origination fees, appraisal fees, application fees or closing costs. However, there is a prepayment penalty, which kicks in when you pay off your total loan balance within three years from the loan origination date. The fee is capped at $500 and does not apply to residents of Connecticut, Minnesota, New York, North Carolina, Oklahoma or Texas.

Discover the Pros and Cons of Home Equity Loans

In this section, we’ll take an in-depth look at Discover’s strengths and weaknesses when it comes to home equity loans.

  • No appraisal fees, origination fees, mortgage taxes or other costs at closing
  • Easy Online Application Process
  • Flexible Fixed Repayment Terms
  • Prepayment penalty of $500 may apply in some states
  • Home equity line of credit (HELOC) not available

Pros Explained

No appraisal fees, mortgage taxes, or other costs at closing

Many lenders charge one or more fees before loan disbursement as closing cost, which can range between 2% to 5% of the loan amount.

Discover, on the other hand, doesn’t charge a fee at closing—certainly a huge money-saver for borrowers.

Easy Online Application Process

Discover makes it easy to apply for loans online. Discover will ask for certain personal information, loan amount, its intended purpose and a few other details before taking you to your loan options. The entire online loan application process should take only a few minutes to complete.

Flexible Fixed Repayment Terms

With the Discover home equity loan, you have the option of choosing between 10-, 15-, 20- and 30-year terms. Your interest rate remains fixed throughout your repayment term, making it easy to plan for fixed payments.

cons explained

Prepayment penalty of $500 may apply in some states

Charge a prepayment penalty of up to $500 if you pay off your home equity loan within the first 36 months. Residents of Connecticut, Minnesota, New York, North Carolina, Oklahoma and Texas are exempt from this fee.

Home equity line of credit (HELOC) not available

A home equity line of credit (HELOC) works similarly to a home equity loan in that both loans are backed by the equity in your home. However, the two loan types differ in how they operate. A home equity loan is a term loan. Term loans offer a single upfront payment that you repay over a specified period of time.

In contrast, HELOCs are revolving lines of credit, which let you borrow up to a credit limit, which you must repay within a set time frame. However, Discover, however, does not currently offer this option.

For more information on this type of loan, see our guide to the Pros and Cons of Home Equity Line of Credit.

Discover Home Equity Loan Offers

With Discover, you can choose from two home equity loan products.

home equity loan

Traditional home equity loans provide you with a one-time payment that is secured by the equity in your home. With Discover, you can borrow up to 90% of your home’s equity value with a minimum loan amount of $35,000 and a maximum of $300,000. Discover currently offers fixed repayment schedules for 10-, 15-, 20- and 30-year intervals with rates ranging from 5.99% to 13.99%.

Knowing how much equity you have in your home can help you determine what loan amount you can apply for. Common uses of home equity loans include home renovations, repairs, emergency expenses and debt consolidation.

mortgage refinance

A mortgage cash-out refinance loan replaces your existing mortgage with a new one that has lower interest rates. Discover’s mortgage refinance terms are virtually identical to its home equity loans, although it has slightly lower APRs. Presently, Discover home loan rates range from 5.99% to 10.24%.

Discover Home Equity Loan Pricing

Because Discover doesn’t charge a termination fee, your only cost will be the interest payment.

Discover, like all other lenders, uses your credit score to determine the APR. Be sure to use Discover’s home equity loan calculator, which can help you calculate your rate and monthly payments.

Discover Home Equity Loan Financial Stability

Fitch Ratings, the leading commercial credit rating agency, has given Discover Financial Services an outlook of BBB+ through 2022. This score means that Discover’s financial outlook is stable.

Ideally, you want to do business with lenders who have solid credit ratings because they are less likely to go bankrupt. Fitch Ratings arrives at its score by evaluating Discover in several areas, including the strength of its balance sheet, its business practices and broad market position.

Search for the availability of home equity loans

You can apply for a Discover home equity loan from anywhere in the country, over the phone or through Discover’s convenient online web portal.

availability

Discover is available to US residents in all 50 states.

However, to qualify for the Discover home equity loan, you must meet certain criteria. Check to see if you meet the following minimum loan eligibility requirements.

  • credit scoreDiscover requires a credit score of at least 620 to qualify for a home equity loan. A higher credit score can lead to lower rates, which means more favorable loan terms. If your credit score isn’t up yet, see our article on how to get a home equity loan with bad credit.
  • debt to income (DTI) ratio: Discover looks for a DTI of over 43%. The DTI measures how much debt you have relative to your income. To calculate your DTI, divide your monthly loan payment by your monthly income.

For example, if you average $1,500 in monthly loan payments and you earn $5,000 per month, your DTI would be 30%. DTI only determines loan eligibility. In some cases, a lower DTI with a higher credit score can help you get a better rate.

  • your recent work historyY: Discover asks for two years of work history documentation. You can use tax records, pay stubs, W2 forms, or 1099 forms (if you’re self-employed).
  • Maximum Combined Loan-to-Value (CLTV): With Discover, you can qualify for up to 90% CLTV. This metric represents the sum of all your existing home loans divided by the appraised value of your home. For example, if you have a CLTV of 50% on a $500,000 home and you have $50,000 outstanding on your first mortgage, you can borrow up to $200,000 through your home equity loan.

contact information

Discover is an online bank, which means you can’t visit a local branch office to apply for a loan. However, Discover provides several convenient ways for customers to get in touch 24/7 including a Discover home loan phone number, chatbot and mailing address.

  • phone: Call Discover’s 24/7 toll-free hotline to speak with a customer support agent at 1-800-DISCOVER.
  • Postal addressMail general correspondence to: Discover Bank, PO Box 30418, Salt Lake City, UT 84130.

user experience

Discover’s website and online forms are simple and easy to navigate. It took us only a few minutes to create a quote. Discover’s streamlined apps and payment systems make for a generally positive experience.

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Discover Home Equity Loan Customer Satisfaction

Discover Bank ranks second in JD Power 2022 US Direct Banking Satisfaction Survey Ranked first in overall customer satisfaction among checking and savings providers. JD Power measures customer satisfaction by looking at a broad sample of customers and factors such as customer service, ease of managing accounts via mobile app and website, level of trust, and banking fees.

In addition, Discover has a BBB rating of A+, which is the highest rating the organization gives to companies. The BBB rating considers factors such as complaint history, transparent business practices and how quick a company is to respond to and resolve customer complaints.

Find Home Equity Loan FAQs

What is Discover’s home equity loan eligibility criteria?

Discover requires a minimum credit score of 620 and two years of continuous work history. You must also have a debt-to-income (DTI) of 43% or less and a CLTV of up to 90%. You do not need to have a Discover Bank account to apply for an equity loan.

How do I apply for a home equity loan with Discover?

If you prefer a more personal approach, you can apply for a home equity loan over the phone. Otherwise, you can use Discover’s online application form. With only four sections, it will take you only a short time to fill out this form. Keep in mind that applying is only the first step. You will have to wait several weeks before the loan can be closed.

Is the Discover Home Equity Loan Worth It?

It completely depends on your needs and other options. People typically take out home equity loans to pay for major home repairs or renovations, cover emergency expenses, or consolidate high-interest debt such as credit card debt. If you have a strong reason for taking out a home equity loan and a solid plan to pay it back, a Discover home equity loan may be worth it. Always compare your options before making any major financial decision. Add together how much you’ll pay in fees and interest to help you make direct comparisons between different loan types and lenders.

How We Evaluated Discover Home Equity Loans

We evaluated Discover Home Equity Loans based on several metrics, including:

  • fees
  • average apr
  • Minimum and Maximum Loan Amount
  • Minimum Eligibility Requirements
  • easy access
  • Ease of application and underwriting process
  • customer satisfaction

Summary of Money’s Discover home equity loan review

Discover offers home equity loans with no closing costs. It imposes prepayment penalty on borrowers who pay off their total loan within 36 months from the loan origination date. Discover lets customers apply online or over the phone. Overall, the Discover home equity loan process is simple and painless. You can expect four to six weeks to pass from start to finish.

Discover also offers a mortgage refinance cash-out product that gives homeowners access to their home credit when they switch to a lower interest loan.