Refinance FAQ

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How much home equity do I need for a refinance?

The amount we can lend depends on the type of loan you request. FHA programs offered by Discover can lend up to 97% of the appraised value of your home. Loan limits on FHA loans are predetermined by HUD (U.S. Department of Housing and Urban Development) and vary by county. Conventional loan programs offered by Discover can lend up to 95% of the appraised value of your home depending on the loan product. The maximum loan amount is at least $417,000 and is higher in some counties based on county limits set by HUD.

Can I combine my first and second mortgages (equity line or loan) when I refinance?

If necessary criteria are met, you may be able to combine your second mortgage with your first one. To learn more about whether or not you are eligible to do so, please contact your Discover mortgage banker at 1-888-866-1212.

Can I refinance if my home is for sale?

Discover may refinance your home if it has been off of the market for one day. Discover will not refinance your home if it is currently listed for sale. Additional requirements may apply. Ask your mortgage banker for further detail.

Will a prepayment penalty affect my refinance?

Currently, we do not have prepayment penalties on any of our loan products. However, if you currently have a prepayment penalty on a loan that you would like to refinance, we can take that into account when discussing your loan options.

Can I refinance for more than my home's value?

At this time, Discover doesn't offer loan programs that allow you to refinance your home for more than its value.

Why should I refinance my home loan?

There are several reasons that refinancing might be a good idea for you. You may be tired of making two payments: one for your first mortgage and another for your second. Perhaps it's time to reduce your current interest rate to a lower fixed or adjustable rate. You may also want to switch to a shorter term mortgage in order to pay off your mortgage sooner. Maybe you have an adjustable-rate that you want to convert into a fixed-rate mortgage. You may want to cash out some of your equity, or lower your overall mortgage payment. To talk about the possibilities, call one of our mortgage bankers at 1-888-866-1212 or Request a Call online.

Can I refinance with low out-of-pocket costs?

With the wide variety of loan programs available at Discover, you may be able to refinance at minimal cost to you. Closing costs on these loans may be added to the principal balance or reflected in a higher interest rate. You'll see an immediate reduction in your payment, and you won't have to sacrifice your bank account or home equity to get a great rate. Ask one of our experienced mortgage bankers about our flexible financing options, or apply online to get matched with a loan program that fits your goals.

Should I refinance if current rates change slightly?

The longer you plan to stay in your home and the bigger the difference in rates, the more likely it is that a lower interest rate may save you money. You can use our Mortgage Refinance Calculator to see how much you may reduce your payments by refinancing. However, even if you don't pick a lower interest rate, refinancing can still save you money by allowing you to replace higher interest debt with a low-interest mortgage.

What is a cash out refinance?

A cash out refinance is when you take out a new home loan for more money than you owe on your current loan and receive the difference in cash. It allows you to tap into the equity in your home. Cash out refinancing makes sense:

  • When you have the opportunity to use the equity in your home to consolidate other debt and reduce your total payments each month
  • To pay for the cost of improvements that increase the value of your home
  • When you are unable to get other financing for a large purchase or investment, or if the cost of other financing is more expensive than the rate you can get on a cash out refinance.

To learn more about cash out refinancing, read our Cash Out Refinance article.

How can I consolidate debt with a refinance?

With a cash out refinance, you can use the cash to pay down higher interest debt. You will still owe the same amount of total debt when all is said and done, but you will have swapped out high-interest debt for the lower interest rate on your new home loan. This can save you a lot of money in monthly interest payments. In many cases, you will also get the added benefit of deducting these interest payments from your taxes (consult your tax advisor for details). Use our Cash Out Refinance Calculator to see how you can consolidate your debt through a cash out refinance.

What types of loans are available?

Discover offers a wide variety of loan products with various features. View our Loan Options table to compare our loan products. Please contact us at 1-888-866-1212 to further discuss our available loan options.

What is the difference between a fixed-rate mortgage and an adjustable-rate mortgage?

An ARM is a loan that starts off with a low fixed interest rate for an initial period of time (anywhere from 1-10 years), and then the rate adjusts periodically to reflect changes in market interest rates. As a result, your monthly payment could either go up or down depending on interest rates when your loan adjusts. With a fixed-rate mortgage, the interest rate remains the same throughout the life of the loan, and your monthly principal and interest payments won't change. As a tradeoff for the security of knowing that your monthly payment won't increase, fixed-rate mortgages typically have a slightly higher initial interest rate than adjustable-rate mortgages. Homeowners who plan to remain in their homes for a longer time or prefer steady rates and monthly payments may prefer a fixed rate. One of our mortgage bankers can help you compare mortgages and choose one that works with your individual goals.

What is a conforming loan?

A conforming loan is a mortgage whose amount is under the maximum amount for loans that the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are legally allowed to buy.

What is an FHA loan?

An FHA loan is a loan insured by the Federal Housing Administration (FHA). The FHA is a division of the U.S. Department of Housing and Urban Development (HUD) that insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

Do you have low out-of-pocket cost options?

With the wide variety of loan programs available today, there are many home finance options. With a minimal out-of-pocket cost loan, you'll see immediate reductions in your payments, and you won't have to sacrifice your savings or equity to get a great rate. Closing costs on these loans may be added to the principal balance or reflected in a higher interest rate. Contact one of our mortgage bankers for information on flexible financing options. Learn more about loan choices offered by Discover Home Loans by calling us at 1-888-866-1212.

How do I apply for a Discover home loan?

Simply fill out a few pieces of information on our online form and a Discover mortgage banker will call you shortly. If you prefer, you can always pick up the phone to begin the application process by calling us at 1-888-866-1212.

How long does the mortgage process take?

The time needed to complete the mortgage process varies by customer and lender because it includes gathering information from a customer, verifying that information and processing the actual loan. At Discover, we close loans fast. We have funded loans in as little as 10 days and target 30 days for refinance loans or before close of escrow on all purchase transactions. To learn more about the length of our mortgage process, please contact your mortgage banker at 1-888-866-1212.

What documents do I need to apply for a mortgage?

View our Refinance Application Checklist to access a list of documents required to apply for a mortgage.

What is a Good Faith Estimate (GFE)?

A Good Faith Estimate (GFE) is a written estimate of costs the borrower will have to pay at closing, provided by a lender shortly after your apply for your loan. To learn more about the GFE, read our Understanding Your Good Faith Estimate article.

What is LTV (loan-to-value)?

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).

What is the maximum LTV I can have to get a loan with Discover Home Loans?

The amount we can lend depends on the type of loan you request. FHA programs offered by Discover can lend up to 97% of the appraised value of your home. Loan limits on FHA loans are predetermined by HUD (U.S. Department of Housing and Urban Development) and vary by county. Conventional loan programs offered by Discover can lend up to 95% of the appraised value of your home depending on the loan product. The maximum loan amount is at least $417,000 and is higher in some counties based on the county limits set by HUD.

Why is my credit score important?

Your credit score is a way of measuring how likely you are to pay (or not pay) your bills. It's just one of the key factors that Discover looks at when deciding if we will approve your loan application and for what amount and at what interest rate. The higher your credit score, the better your chances of approval at a favorable interest rate. You should discuss your individual credit situation with your Discover mortgage banker. In addition, you can obtain a free copy of your credit report once a year from each of the three major credit reporting agencies - Equifax, Experian, and TransUnion - by visiting www.annualcreditreport.com. You may also obtain a credit score from the agency for a small fee at any time, and your lender will provide your score when you apply for your loan.

Will my credit history prevent me from getting a mortgage?

A mortgage banker can explain how your credit score and credit history affect your ability to get credit and discuss available financing options. Contact your Discover mortgage banker by calling 1-888-866-1212.

What does it mean to lock my rate?

A rate lock is when a lender guarantees an interest rate for a set period of time, usually between loan application and closing. During this period, typically 15-90 days, you're protected against rate fluctuations. Lenders have to pay to "reserve" your rate, so the longer your lock-in period, the higher your cost. Our experienced mortgage bankers can answer your additional questions about rate locks.

How long can I lock my rate?

To learn more about your rate lock period options, contact your mortgage banker at 1-888-866-1212.

What is the difference between "locking" and "floating" a rate?

In order to protect themselves against a potential increase in interest rates, many borrowers ask their lender to lock in the rate they have been quoted for a specific period of time, usually 30-60 days. Other borrowers prefer to take the chance that rates will decrease while the loan is processed and let the rate on their loan "float." The rate can then be locked in at any time until just before your loan closes.

What is an appraisal and why do I need it?

An appraisal is a written estimate of a property's current market value, based on recent sales information for similar properties, the current condition of the property and the neighborhood. An appraisal is required because it provides written proof of your home's actual value which is used to determine the loan amount you can receive. Your lender will order your appraisal, but a third-party company will perform the appraisal. There will be a fee associated with your appraisal paid to the appraisal company. To learn more about appraisal fees, please contact your Discover mortgage banker at 1-888-866-1212.

What happens at closing?

Closing is the point when your mortgage or deed of trust will be given to the new lender. At your closing, a closing agent will meet with you at a location convenient to you to review and sign the necessary paperwork to finalize your loan. In some states (called escrow states), the closing takes place over a period of time. A neutral third party holds money and/or documents until the escrow instructions are fulfilled. The party can be a title company or an attorney, depending on state regulations.

What are the various costs required at closing?

Closing costs can be divided into two main categories: items controlled by the lender and items controlled by third-parties out of the lender's control. The sum of these items is what you will be required to pay for at closing.

  1. Lender fees include any costs associated with processing your loan such prepaid interest for the extra days in addition to a full month before the first payment is due, discount points, origination charge and any rate lock fees
  2. Third-party fees include fees paid for services performed by parties other than the lender, established by the state or local government or set by the individual vendors that provide the service. They also include pre-payments for taxes and insurance that are placed in an impound or "escrow" account. Some examples of third-party fees are appraisal fees, title service fees and government recording fees.

What homeowners insurance requirements will I need to meet at closing?

At the time of closing, lenders require you to show that you have adequate insurance in place. For example, if you're purchasing a home, your lender may require insurance that is valid for one year and covers at least 80% of the replacement value of your home. Although lender rules vary, you may want to consider purchasing full replacement costs insurance even if the lender doesn't require it, to make sure that you can repair or rebuild your home after a fire or other loss.

What is an escrow or impound account?

An escrow account is typically established at the time of your closing. An escrow account is held by the lender and contains funds collected as part of mortgage payments for annual expenses such as taxes and insurance.

What is the difference between APR and interest rate?

It is important to understand the difference between your interest rate and APR.
Your interest rate is the direct charge for borrowing money.
The APR, however, reflects the 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.

What are points and when should I pay them?

Paying points is a way to reduce your interest rate when you purchase or refinance your home. In essence, you pay up-front for a lower interest rate, reducing your monthly payments. One point is equivalent to 1% of your loan amount; one point on a $100,000 loan amount is equal to $1,000. To find out if paying points may benefit you, call one of our mortgage bankers at 1-888-866-1212.

How can I compare loan offers when shopping for a mortgage?

If you are comparing loans across lenders, be sure to look at all costs, not just the interest rate. The annual percentage rate (APR) tells you the estimated cost of your loan, which includes the interest rate and other upfront fees that you pay for the loan (such as discount points and origination fees). The APR is based on the assumption that you'll keep the loan for its entire term, so you should only use it to compare loans of the same type and length.

What is an index and how does it impact my rate?

An index is a published rate used by lenders to calculate interest adjustments on ARMs (Index + Margin = Interest Rate). Some indexes may adjust more frequently than others. Common indexes used are LIBOR (London Interbank Offered Rate), Treasury rates, and the prime rate.

What are closing costs?

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 GFE (Good Faith Estimate) that outlines all the closing costs associated with your loan soon after you apply.

What are third-party fees?

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.

What is an origination fee?

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.

What is prepaid interest?

Prepaid interest is a cost charged to a borrower at closing to cover interest on the loan for the extra days in addition to a full month before the first payment is due.

What is PMI and why do I need it?

PMI is private mortgage insurance, which you'll need to pay for if your down payment is less than 20% of the purchase price or if the loan has more than an 80% loan-to-value (LTV) ratio. Even if you're refinancing, you'll need to pay PMI as long as your LTV remains above 80%.

What is the difference between mortgage insurance and homeowners insurance?

Homeowners insurance is an insurance policy you have on your property, which protects you and the lender against accidents and loss of property or its contents. Mortgage insurance, on the other hand, protects the lender against losses due to default of a mortgage.

How much does mortgage insurance cost?

Mortgage insurance costs are based on loan-to-value (LTV) and credit profile and can vary across lenders. For more information on the cost of mortgage insurance, please contact your Discover mortgage banker at 1-888-866-1212.

What is title insurance and why do I need it?

Title insurance is insurance that protects the lender or buyer against loss from defects that might exist in the title to a property. In order to protect your loan "investment," a lender will typically require the seller to pay for "lender's coverage" title insurance. You can choose "owner's coverage" to protect your investment in the title of your property.