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 can be a useful way to cover major expenses by letting you borrow against the equity of 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
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.
- No appraisal fees, origination fees, mortgage taxes, or other costs due at closing
- Easy online application process
- Convenient fixed repayment terms
- May charge a $500 prepayment penalty in some states
- Home equity line of credit (HELOC) not available
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. Your interest rate remains fixed across the length of your repayment period, making it easy to plan for scheduled payments.
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's equity 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 rates currently ranging from 5.99% 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.
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 5.99% to 10.24%.
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 2022, major business credit ratings agency, Fitch Ratings, gave Discover Financial Services an outlook of BBB+. This score means that Discover has a stable financial outlook .
Ideally, you want to do business with lenders that have solid credit ratings because they're less likely to become insolvent. Fitch Rating arrives at its score 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.
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 620 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.
- 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).
- Maximum Combined Loan-to-Value (CLTV): With Discover, you can qualify for a maximum CLTV of 90%. This metric represents the sum of all your existing home loans divided by your home's appraised value. For instance, if you have a CLTV of 50% on a $500,000 home and an outstanding balance of $50,000 on your first mortgage, you could borrow up to $200,000 through your home equity loan.
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.
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 2022 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.
Discover Home Equity Loans FAQ
What is Discover's home equity loan qualification criteria?
How do I apply for a home equity loan with Discover?
Is a Discover Home Equity Loan worth it?
Always compare your options before you make a 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 along a number of metrics including:
- Average APR
- Minimum and maximum loan amounts
- Minimum eligibility requirements
- 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 a mortgage refinance cash-out product that grants homeowners access to their home's credit when switching over to a lower interest loan.