Frequently Asked Questions (FAQs)

A home equity loan lets you borrow a fixed amount, secured by the equity in your home, and receive your money in one lump sum. Typically, home equity loans have a fixed interest rate, fixed term and fixed monthly payment. Interest on a home equity loan may be tax deductible under certain circumstances. Please consult your tax advisor to see if you qualify.

A mortgage refinance allows you to obtain a new mortgage loan replacing your current mortgage. At times when mortgage rates are low, you may want to consider a refinance to lower your rate so that you are paying less money over the life of your mortgage. You can also choose to extend or shorten your current loan term with your new loan depending upon your personal goals. You may also be able to take cash out of your equity when you refinance to use for a variety of purposes including home improvement, debt consolidation, or paying for major expenses or purchases. Many conventional refinance lenders charge closing costs when you refinance; however, Discover offers loans with zero application fees and zero cash due at closing.

A cash out refinance is when you take a portion of your home's equity out as cash when refinancing your current mortgage. While a traditional refinance loan will only be for the amount that you owe on your existing mortgage, a cash out refinance loan will increase the amount of the loan, allowing you to both pay off your existing mortgage and take a lump-sum payment in cash for the additional amount of the loan. When mortgage rates are low, a cash out refinance may be advantageous over other types of credit like credit card, personal loans, or HELOCs that have a variable rate.

Cash out refinance loans from Discover have low, fixed rates that won't change over the life of the loan, as well as no cash due at closing.

There are many differences between a home equity loan vs HELOC. For example, a home equity loan comes with fixed rates and a lump sum of cash while a HELOC comes with variable rates and a line of credit. Regardless of which you choose, both a home equity loan and HELOC can help finance major projects like home renovations.

Discover offers home equity loan and mortgage refinance products but does not offer HELOCs.

With Discover, you will not have to pay any application fees, origination fees, or appraisal fees. Since a home equity loan or mortgage refinance is a secured debt, the average interest rate is typically lower than what you'll pay on an average credit card or other form of unsecured debt.

Let’s use the following example to walk through calculations for cash out refinance (you can substitute your home’s values in the calculations below or use our refinance calculator):

A homeowner owes $100,000 on a first-lien mortgage loan and $45,000 on a second-lien home equity loan.

The current home value is $400,000.

The combined loan amount is $100,000 + $45,000 = $145,000.

The current CLTV is $145,000 / $400,000 = 36%.

With Discover, homeowners can borrow up to 90% CLTV: 0.90 x $400,000 = $360,000 could be taken out against the current value of the home.

In this example, since $145,000 is owed on existing loans, the maximum cash out value possible with a Discover loan is $360,000 - $145,000 = $215,000. While borrowers do not have to take out the full amount available, finding these values can help homeowners to understand borrowing limits before applying for a loan.

A traditional refinance loan will fully repay the outstanding balance on your current mortgage with a new loan at typically better rates or terms. A cash out refinance does the same thing, but also allows you to take out an additional amount that you can receive as a lump-sum payment. The additional amount will be included in your new loan balance and can be used for a variety of different purposes like debt consolidation, home improvement or making a large purchase. 

Home equity loans and cash out refinances may be used for home improvements or repairs, to consolidate and pay down high-interest debt or to pay for major purchases or expenses.

A home equity loan or mortgage refinance can offer the advantage of a low fixed rate that can be paid over a loan term up to 30 years.  This rate may be lower than what you can obtain with a credit card or a personal loan.

With a home equity loan or mortgage refinance from Discover, you can:
- borrow exactly what you need—from $35,000 up to $300,000.
- lock in a low fixed interest rate that may be less than unsecured loan options.
- pay $0 origination fees, $0 application fees, $0 appraisal fees, and $0 cash due at closing.

Consult your insurance agent to see if your policy needs to be revised or riders need to be attached because of your improvements. It's quite possible you'll see an increase in your premium—not only because you've added value and made your home worth more, but also because you need full replacement coverage for all the new appliances, furnishings and upgrades you've installed.

Benefits: Using your equity to pay down high-interest debt can eliminate stress and worry and put you on a solid path to financial freedom on your own terms. Plus, you'll enjoy the stability of one fixed monthly payment at a fixed interest rate that's probably much lower than what you're currently paying to multiple creditors on the high-interest debt. With multiple term options, you can choose to save more or save less in interest based on the monthly payment you can afford.
Considerations: The relative benefits of a loan for debt consolidation depend on your individual circumstances and your actual debt payments. You will realize interest payment savings when you make monthly payments towards the new, lower interest rate loan in an amount equal to or greater than what you previously paid towards the higher rate debt(s) being consolidated. Keep in mind, though, while your monthly payments will be lower, in the long term you may pay more interest if the debt is extended over a longer period of time. 

Gather the latest statements for all the bills and loans you want to pay down and carefully review the interest rates and terms. These can include:
- auto loans
- boat/RV loans
- credit cards
- personal loans
- other home equity loans or lines of credit
- other high-interest debt
As a starting point, you'll want to know how much you owe on each debt, the interest rate / APR you're paying, and what you typically pay. Our debt consolidation calculator will help you figure out your total debt, how long it will take to pay it off, and how much you'll pay if you continue your current course, and potential savings available to you with a debt consolidation.

There are few restrictions on how to you use the lump sum payment from your cash out refinance loan. Borrowers have successfully used this loan to consolidate debt, make repairs or renovations to their home, or support educational expenses. Evaluate your loan options and make a decision based on your financial needs.

Refinancing your home mortgage allows you to pay off your original mortgage with a new loan. Typically, people refinance their original mortgage loan for one or more reasons:

• to earn a better interest rate,
• to convert a variable rate to a fixed rate (or vice-versa),
• to reduce monthly payments by extending the repayment term of the loan , or
• to reduce interest charges paid over the life of the loan by reducing the repayment term of the loan.

Speak with one of our Personal Bankers to get an initial idea of your eligibility, or start your application online here. Here are a few things we look for:
- Credit score of at least 680
- History of responsible credit use
- Verifiable employment and income
- Debt-to-income ratio (DTI) less than 43%

Everyone's financial situation differs; it is important to recognize what you can comfortably afford to borrow. In general, the loan amount you can afford depends on four factors:

1. Your debt-to-income ratio, which is your total monthly payment as a percentage of your gross monthly income
2. The amount you are willing to pay for closing costs
3. Your credit history

For a better understanding of how much you can afford to borrow, use the rate & payment calculator from Discover.

It will depend on what you are seeking to finance.  If you are considering a home improvement project, research your projects and if necessary get estimates from possible contractors.   If you are considering a debt consolidation, you can look at recent billing statements to understand the amount of any outstanding balances and what interest rates you are currently paying.  Some people also use funds to cover major expenses such as a wedding or a car purchase.  Research is a big help here as well, but ensure you take the time to consider all aspects which may influence your final bill.

Finally, you may want to consider using your home loan proceeds for multiple purposes. For example you can use a home loan to finance a home improvement and consolidate your debts.  Do your research and make sure you understand how your monthly payments will fit within your budget.

A few things are worth noting:

1. Interest on a home equity loan may be tax deductible for home improvements under certain circumstances. Please consult your tax advisor to see if you qualify. 
2. By using your home as collateral you may get a low rate, however, if you default on your loan the lender may have the right to foreclose on your property. 

You can apply for a home loan from Discover using a home you own and live in as your primary residence. This residence must be a single family dwelling. Eligible property types include single-family homes, condominiums, townhomes, and Planned Unit Developments (PUDs). Other properties, such as investment properties, manufactured homes, commercial properties, log homes, trusts, and properties larger than 20 acres are not eligible at this time.

Typically, lenders will use your Combined Loan-to-Value (CLTV) ratio to understand your ability to take on new debt. To generate your CLTV on your own, follow these steps:

• Add up the balances on all your existing home loans such as first mortgages, second mortgages or home equity lines of credit. This is your combined loan value.
• Find the estimated value for your home. You can use an online tool, compare the sale cost of similar homes in your neighborhood, or pay for an official estimate.
• Divide your combined loan amount by your estimated home value to calculate your current CLTV.

Once you know your current CLTV, you need to find out the maximum CLTV allowed by your cash out refinance lender. Many lenders will cap any lending at 80% of your CLTV, but Discover Home Loans allows for loans up to 90% of CLTV. Use your lender’s maximum CLTV percentage and multiply that by your current home’s value to calculate maximum loan amount. When you subtract your existing mortgage balance from that maximum loan amount, you will see exactly how much cash can be obtained through cash out refinance.

You can get an estimate of your home's market value by reviewing recent sale prices of similar homes in your area. 

We will estimate your home value by reviewing multiple data points, such as an Automated Valuation Model (AVM), Property Condition Report (PCR), and the stated value of the home that you provide. In some cases, an appraiser will drive to your home and conduct an appraisal by viewing the exterior only. With Discover Home Loans, you won’t pay any fees for your appraisal.

An AVM uses mathematical modeling to estimate your home's value, using inputs such as data on comparable home sales, listing trends, and home price changes. An appraiser uses multiple methods, such as reviewing comparable sales and estimating the cost to build a similar home, in order to arrive at an estimated value. An Appraiser may consider property features or defects that are visible during the inspection of the property to value the home as well.

To qualify for a loan, lenders will look at your loan-to-value (LTV) ratio. LTV is a ratio, expressed as a percentage, of the requested amount of your home loan divided by the purchase price or appraised value of your home. For example, if the home you are purchasing or refinancing has been appraised at $200,000 and you are requesting a loan for $100,000, the LTV is 50% ($100,000 / $200,000).

You can get a rough estimate of your available equity by subtracting all the debts secured by your home (i.e., your mortgage and any other home equity loans) from your home's estimated market value. For example, if the market value of your home is $300,000 and you owe $100,000 on your existing mortgage, you have $200,000 in home equity.

Your APR is determined using factors like your credit history, loan amount, and the amount of equity you will have in your home after receiving the loan.

Your interest rate is the direct charge for borrowing money.
The APR, however, reflects the entire cost of your mortgage as a yearly rate and includes the interest rate, origination charge, discount points, and other costs such as lender fees, processing costs, documentation fees, prepaid mortgage interest and upfront and monthly mortgage insurance premium. When comparing loans across different lenders, it is best to use the quoted APRs for the same type and term of loan.

With Discover Home Loans you’ll pay zero application, zero origination, and zero appraisal fees. We will charge you interest and may charge a fee if your payment is late or if you do not have sufficient funds to cover a payment. We pay all closing costs incurred during the loan process, so that you don't have to bring any cash to your loan closing.

Closing costs are fees incurred in a real estate or mortgage transaction and paid by borrower and/or seller during a mortgage closing. These typically include a loan origination fee, discount points, attorney's fees, title insurance, appraisal, survey and any items that must be prepaid, such as taxes and insurance escrow payments. Your lender will give you a copy of your Loan Estimate that outlines all the closing costs associated with your loan soon after you apply. Discover offers home equity loans and mortgage refinances and pays the closing costs for you at closing.

Third-party fees are costs associated with your mortgage that go to a third-party for services. Lenders typically have no control over most of these fees. Third-party fees include, but are not limited to, credit report fees, hazard insurance, appraisal fees and title company search fees.  With Discover Home Loans, we will pay these fees for you and you will pay zero cash at closing.

An origination fee is a fee a lender charges to process a mortgage, usually expressed as a percentage of the loan which pays for the work in evaluating and processing the loan. Discover does not charge any origination fees for its home equity loans or mortgage refinances and borrowers pay zero cash at closing.