Discover home equity loan review: A fixed rate

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Discover home equity loans at a glance

  • Fixed or variable rate: Fixed
  • How to withdraw funds: Funds are issued in one lump sum
  • Origination fee: No origination fees, closing costs or appraisal fees
  • Loan-to-value ratio: Up to 90% of your home’s current value
  • Time to fund: About eight weeks

Discover is an online bank that provides a wide variety of lending products, including credit cards and loans. This includes home refinance loans and home equity loans with fixed rates.

Pros

  • Fixed APR
  • Online application
  • May qualify with lower credit
  • No origination or appraisal fees

Cons

  • Early payoff penalty
  • Longer funding time
  • High minimum loan value

4 things to know about Discover home equity loans

Discover offers home equity loans with competitive rates, flexible terms and other unique benefits. Let’s explore some of the loan features that set it apart from other lenders.

1. Transparent pricing

Discover does not charge any loan origination fees. The loan also has no appraisal fees or application fees.

Plus, Discover is up front about its APR charges. If this is your first lien on a home, then you could qualify for the lowest starting rates. But most loans will likely be second liens, which have slightly higher starting APRs.

Keep in mind that Discover’s home equity loan APRs are fixed rates, not variable, which means your payment won’t change over time.

One fee to watch out for is an early repayment penalty. If you pay off your loan in less than 36 months, Discover may charge back some of your closing costs. This amount won’t exceed $500 and will be waived if you live in Connecticut, Minnesota, New York, North Carolina, Oklahoma or Texas.

2. Less strict eligibility requirements

Discover has relatively low minimum credit requirements. To be eligible for a home equity loan through Discover, you’ll need a credit score of 620 or higher and a debt-to-income ratio of less than 43%. Your debt-to-income ratio is calculated by totaling up all your monthly debt payments and dividing them by your monthly income before taxes.

If you want to borrow more than $150,000 though, you’ll need stronger credit: at least scores of 700.

You’ll also need to offer proof of your income and have a “history of responsible credit use,” according to Discover. It’s worth noting that these are minimum requirements and that meeting them will not guarantee approval.

3. High LTV ratio

While Discover’s home equity loans go up to $300,000, they allow a combined loan-to-value ratio of up to 90%. 

Note that the CLTV ratio includes the total of all mortgage loans, so you’d add what you owe on your primary mortgage plus what you want to borrow from a Discover home equity loan and divide that by your total home value to get this number.

4. Apply online

You can apply for a Discover home equity loan online or via phone.

The initial application can be filled out and submitted online. From there, you’ll be assigned a personal banker who may communicate with you online, via email or by phone.

You can upload any documents that Discover requests through its loan portal. This online portal is also where you’ll download and sign any documents for final loan approval.

Can I pay off my Discover home equity loan early?

You can pay off your Discover home equity loan early, but you may be charged a fee.

Discover offers four repayment terms: 10, 15, 20 and 30 years. But if you want to pay off your loan a few months or a few years early, you can.

But if you pay off your loan less than three years after the closing date, Discover can request that you pay back some of the closing costs. This fee cannot exceed $500. But if you live in certain states, such as Texas and Minnesota, Discover cannot pass these charges on to you.

Who is a Discover home equity loan good for?

Discover’s home equity loans can be a good choice for projects such as making major home renovations when you have at least a small-to-moderate amount of home equity.

Home equity loans, in general, are good for one-time purchases or expenses such as debt consolidation or a home improvement project, where you know pretty precisely how much you want to borrow.

Discover’s home equity loans may also be a good fit for people with lower credit scores since its minimum credit score requirement is only 620. But Discover home equity loans aren’t right for everyone. While Discover offers a high LTV rate limit, it has a minimum loan value of $35,000, which may be too high for some people who only want a small amount.

How to apply for a Discover home equity loan

You can apply for a home equity loan from Discover online in a few simple steps.

Here are some documents Discover recommends having available when you apply.

  • Copy of your driver’s license
  • W-2s
  • Paycheck stubs (or other proof of income)
  • Copy of your homeowner’s insurance policy
  • Current mortgage statement
  • Checking account information

It can take nearly two months to get approval on your home equity loan from Discover, but much of this depends on how quickly you provide any requested documentation.

Not sure if Discover is right for you? Consider these alternatives.

  • Figure: This online lender offers a home equity line of credit (or HELOC) with a fixed rate.
  • KeyBank: This lender offers home equity loans and HELOCs with large amounts.

About the author: Amanda Garland is a personal finance writer who has an obsession with credit scores and how they impact all things finance. She holds a Bachelor of Fine Arts degree in Creative Writing, and her writing has been featur… Read more.