Mortgage Refinance

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%

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.

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. 

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.

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.