Cash-Out Refinance vs HELOC in Texas: Which Is Better?

Texas homeowners sit on significant equity — and tapping that equity is one of the most powerful financial tools available to them. But Texas has its own constitutional rules for home equity lending that don't exist anywhere else in the country, and those rules affect both cash-out refinances and HELOCs in ways that matter before you decide which path to take. Here's a complete breakdown.

First: Texas Section 50(a)(6) — The Rule That Changes Everything

Texas has a unique constitutional protection for homestead properties, codified in Article XVI, Section 50(a)(6) of the Texas Constitution. Before comparing products, you need to understand the rules that apply to both:

• 80% combined LTV cap: The total of your first mortgage plus any home equity loan or HELOC cannot exceed 80% of your home's fair market value. If your home is worth $400,000, the maximum total debt in a home equity transaction is $320,000. If you owe $280,000, you can only access $40,000 in equity — regardless of how much the home has appreciated.
• One home equity loan at a time: You can only have one outstanding home equity loan or HELOC on a Texas homestead at any given time. You cannot stack a HELOC on top of an existing home equity loan.
• 12-day waiting period: Texas law requires at least 12 days to pass between when you receive loan disclosures and when you can close. This applies to both cash-out refis and HELOCs on homestead properties.
• Must close at a title company or attorney's office: Home equity transactions in Texas cannot be done by mail or at a bank branch — they must close at a title company, attorney's office, or lender's office (under specific rules).
• Fee cap: Lender fees on a Texas home equity loan are capped at 2% of the loan amount (with some exclusions). This limits what you can be charged for origination.

These rules exist to protect Texas homeowners from predatory equity stripping — a product of the state's historical caution about home equity lending. They add some process, but they also provide genuine consumer protections. Every lender operating in Texas must follow them, no exceptions.

Cash-Out Refinance in Texas: How It Works

A cash-out refinance replaces your existing mortgage with a new, larger mortgage. The difference between what you owe and the new loan amount is paid to you in cash at closing. You end up with one loan, one monthly payment, and a new interest rate that applies to the entire balance.

Example: Your home is worth $450,000. You owe $220,000 on your current mortgage. The 80% LTV cap means the maximum new loan is $360,000. After paying off the existing $220,000 mortgage and closing costs, you could receive up to roughly $130,000 (minus fees) in cash.

Key characteristics of a Texas cash-out refi:

• Fixed rate (most common) — your payment is predictable for the life of the loan
• One closing, one monthly payment — simpler to manage
• The new rate applies to your entire balance, not just the cash-out amount
• Closing costs typically run 2–3% of the new loan amount
• Subject to all Section 50(a)(6) rules including the 12-day waiting period

HELOC in Texas: How It Works

A Texas Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home equity. Rather than receiving a lump sum, you're approved for a credit limit and draw from it as needed during the draw period (typically 5–10 years). You pay interest only on what you've drawn, not the full limit. After the draw period ends, the loan enters the repayment period.

Example: Same $450,000 home, $220,000 owed. You're approved for a $100,000 HELOC. You draw $30,000 for a kitchen renovation in month one, then $25,000 six months later for another project. You only pay interest on the $55,000 outstanding — not the full $100,000 limit.

Key characteristics of a Texas HELOC:

• Variable interest rate — your payment can change as rates move
• Flexible access — draw what you need, when you need it
• Second lien position (your original mortgage stays in place)
• Subject to the same 80% combined LTV cap and Section 50(a)(6) rules
• Rate is typically tied to the prime rate plus a margin

When a Cash-Out Refinance Makes More Sense

A cash-out refi tends to be the better choice in these situations:

• You want rate certainty. If you're worried about a variable rate rising over time, the fixed rate of a cash-out refi locks in predictability for the life of the loan.
• You have a large single expense. Home purchase in retirement, paying off high-interest debt, funding a business, or a major home improvement with a known cost — a lump sum makes more sense than a revolving line.
• Your current mortgage rate is close to or higher than today's rates. If you're already at 6.5% and today's rate is 6.6%, replacing your existing mortgage doesn't cost you much. But if you locked in at 3.2% and today's rate is 6.6%, a cash-out refi would apply that higher rate to your entire remaining balance — a very expensive trade-off.
• Simplicity matters. One loan, one payment, one servicer. The HELOC adds a second account and a variable payment to manage.

When a HELOC Makes More Sense

A HELOC is usually the smarter tool in these situations:

• Your current mortgage rate is significantly below today's rates. This is the most important factor for most Texas homeowners right now. If you bought in 2020–2022 and have a rate in the 2.5%–4% range, doing a cash-out refi would replace that low rate with today's 6.5%+ rate on your entire balance. A HELOC lets you access equity as a second lien without touching your existing mortgage.
• You have ongoing or phased expenses. A multi-phase home renovation, ongoing medical costs, or a business that needs capital in irregular amounts — flexible draws mean you borrow exactly what you need, when you need it.
• You want interest-only payments during the draw period. Many HELOCs allow interest-only payments during the draw period, which keeps monthly cash flow lower while the work is underway.
• You're not sure of the full amount yet. A HELOC gives you a safety net — access to funds when needed, with no obligation to draw the full limit.

Rate and Cost Comparison

In June 2026, cash-out refinance rates for Texas homeowners are generally in the 6.5%–7.2% range for 30-year fixed loans, depending on credit, LTV, and loan amount. Texas HELOC rates are variable and currently range from approximately 7.5%–9%+ depending on the lender and your credit profile, based on prime rate plus margin.

On pure rate, a cash-out refi is often cheaper today — but that comparison only matters if you're willing to reset your entire mortgage at the new rate. For homeowners with sub-4% existing mortgages, the HELOC's higher rate applies only to the drawn amount (a fraction of total debt), while the lower rate stays on the bulk of the balance. The blended cost to the homeowner may still be lower with a HELOC despite the higher headline rate.

A Note on Tax Deductibility

Interest on home equity loans and HELOCs may be tax-deductible when the funds are used to buy, build, or substantially improve the home securing the loan — under federal rules established by the Tax Cuts and Jobs Act of 2017. If you use the funds for other purposes (debt consolidation, college tuition, vacations), the interest is generally not deductible. This is a detail that matters and varies by individual situation. Consult a CPA or tax advisor before assuming deductibility.

How I Approach This Conversation

When homeowners come to me about accessing equity, I start by asking three questions: What do you need the money for? How quickly do you need it? And what's your current mortgage rate? Those three answers almost always point clearly toward one product or the other.

I then model both scenarios side by side — showing you the total cost of each over the time horizon that actually matches your plan. I also make sure you understand all the Texas-specific rules so there are no surprises at the closing table. Use my mortgage calculator to get a baseline, then reach out to me directly for a full equity analysis. Or if you're ready to move forward, visit my refinance page to get started.