Discover Home Equity Loans Review

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

Home equity loans, also known as second mortgages, can be a useful way to cover major expenses like home improvements by letting you borrow against the amount of equity in your home. However, not all lenders offer the same rates, fees or loan terms. This is why comparing lenders and choosing the one with the best rates is important, because it can help you save money across the life of your loan.

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

Best for Low Fees

Discover took our top spot among the best home equity loans lenders for its low fees.

Unlike many term loan providers, Discover doesn’t charge loan origination fees, appraisal fees, application fees or closing costs. There is, however, a prepayment penalty which kicks in if you pay off your total loan balance within three years of the loan's 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 Home Equity Loans Pros and Cons

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

Pros explained

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

Many lenders charge one or more fees prior to loan disbursal in the form of closing costs, which can range somewhere between 2% and 5% of the loan amount.

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

Easy online application process

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

Convenient fixed repayment terms

With Discover home equity loans, you have the option to choose between 10-, 15-, 20- and 30-year term lengths. The company also offers fixed interest rates across the length of your repayment period, making it easy to plan for scheduled payments.

Cons explained

May charge a $500 prepayment penalty in some states

Discover charges 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

Home equity lines of credit (HELOCs) function similarly to home equity loans in that both loans are backed by your home's equity. However, the two loan types differ in how they function. A home equity loan is a term loan. Term loans provide a single upfront payment which you then repay over a set period of time.

By contrast, HELOCs are revolving lines of credit, which let you borrow up to a credit limit which you must then pay off in a certain time frame. However, Discover, however, doesn’t currently offer this option.

For more information on this type of loan, take a look at our guide to the pros and cons of a home equity line of credit.

Discover Home Equity Loans Offerings

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

Home equity loans

Traditional home equity loans provide you with a lump sum payment that's secured by the equity in your home. With Discover, you can borrow up to 90% of your home value with a minimum loan amount of $35,000 and a maximum amount of $300,000. Discover offers fixed repayment schedules for 10-, 15-, 20- and 30-year intervals with mortgage rates currently ranging from 7.99% to 13.99%.

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

Mortgage refinancing

A mortgage cash-out refinance loan replaces your existing mortgage with a new one that has lower interest rates. Discover's mortgage refinancing terms are virtually identical to its home equity loans, although its APRs run a bit lower. Currently, Discover home loan rates range from 6.99% to 10.56%.

Discover Home Equity Loans Pricing

Because Discover doesn't charge closing fees, your only costs will be the interest payments.

Discover, like all other lenders, uses your credit score to determine the APR it will offer. Make sure to use Discover‘s home equity loan calculator, which may help you calculate your rate and monthly payments.

Discover Home Equity Loans Financial Stability

As of this writing, Discover Financial Services is rated BBB- by Standard & Poor's, BBB+ by Fitch Ratings, and Baa2 by Moody’s. All three of these ratings indicate a stable outlook.

Ideally, you want to do business with mortgage lenders that have solid credit ratings because they're less likely to become insolvent. The three rating agencies arrived at their scores by evaluating Discover in a number of areas including the strength of its balance sheet, its business practices and the state of the wider market.

Discover Home Equity Loans Accessibility

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

Availability

Discover is available to U.S. residents in all 50 states.

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

• Credit score: Discover requires a credit score of at least 660 to qualify for a home equity loan. A higher credit score may lead to lower rates, that is, more favorable loan terms. If your credit score isn't quite up there yet, check out our article on how to get a home equity loan with bad credit.

• Credit History: In order to qualify for a home equity loan, Discover will verify you have a responsible credit history. This means the company will go through your credit report and look for a pattern of consistent on time payments. Late payments or accounts in collections will be a red flag.

• Debt to income (DTI) ratio: Discover looks for a DTI of no more than 43%. DTI measures how much debt you have relative to your income. To calculate your DTI, divide your monthly debt payments by your monthly income.

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

• Your recent work history: Discover asks for two years of work history documentation. You may use tax records, pay stubs, W2 forms or 1099 forms (if you're self-employed).

Contact information

Discover is an online bank, which means you can't walk into a local branch office to apply for a loan. However, Discover offers a number of convenient ways for customers to get in touch including a 24/7 Discover home loans phone number, a chatbot and mailing address.

• Phone: Call Discover's 24/7 toll-free hotline to speak with a customer support agent at 1-800-DISCOVER.

• Mailing address: Send general correspondence mail to Discover Bank, P.O. Box 30418, Salt Lake City, UT 84130.

User experience

Navigating Discover's website and online form is simple and easy. It took us just minutes to build a quote. Discover's streamlined application and payment systems make for a generally positive experience.

Discover Home Equity Loans Customer Satisfaction

Discover Bank ranked second in J.D. Power's 2023 U.S. Direct Banking Satisfaction Survey for the category of overall customer satisfaction among checking and savings providers. J.D. 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+, the highest ratings the organization gives to companies. BBB ratings consider factors like complaint history, transparent business practices and how quick the company is to respond and resolve customers complaints.

How We Evaluated Discover Home Equity Loans

We evaluated Discover home equity loans along a number of metrics including:

• Fees
• Average APR
• Minimum and maximum loan amounts
• Minimum eligibility requirements
• Accessibility
• Ease of the application and underwriting process
• Customer satisfaction

Summary of Money's Discover Home Equity Loans Review

Discover offers home equity loans without charging any closing costs. It does charge a prepayment penalty to borrowers who pay off their total loan within 36 months of the loan's 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 elapse from start to close.

Discover also offers other mortgage products like a mortgage refinance and cash-out refinance, which grants homeowners access to their home's equity when switching over to a lower interest loan.