Cash-Out Refi vs HELOC vs Home Equity Loan
Three ways to tap your Houston equity. Each has a different rate structure, fee profile, and use case.
| Feature | Cash-Out Refi | HELOC | Home Equity Loan |
|---|---|---|---|
| Rate type | Fixed | Variable (prime + margin) | Fixed |
| Disbursement | Lump sum at closing | Draw as needed (10 yr period) | Lump sum at closing |
| Replaces 1st mortgage | Yes | No (2nd lien) | No (2nd lien) |
| Max LTV in Texas | 80% | 80% combined | 80% combined |
| Typical closing costs | $3K to $7.5K (cap) | $300 to $1,500 | $1,500 to $3,500 |
| Best when | Lump sum needed, rates lower than current | Flexible access, may pay back fast | Lump sum needed, don't want to refi 1st |
Most Houston homeowners with a low rate on their existing first mortgage (anything sub-5%) should look at a HELOC or home equity loan rather than a cash-out refi. Giving up a 4% first to take a 7% cash-out only makes sense if you really need a fixed payment and a large amount of cash. Otherwise the variable-rate HELOC tends to come out ahead even with rate rises baked in.
Texas-Specific Cash-Out Rules (50(a)(6))
Texas treats cash-out as a separate product under Section 50(a)(6) of the Texas Constitution. The rules:
- 80% LTV cap. The new loan cannot exceed 80% of the property's appraised value. This is the constitutional cap and applies to every Texas cash-out, regardless of loan type.
- $7,500 maximum in fees. Total closing costs (origination, appraisal, title, recording, all third-party fees combined) are capped at $7,500. This is the Texas A(6) cap. Lenders that try to charge more are violating the constitution.
- 12-month seasoning. If you have already done one Texas cash-out, you must wait 12 months before doing another, even if you have more equity to pull.
- One cash-out at a time. The home cannot have multiple 50(a)(6) liens simultaneously. A new cash-out has to pay off the old one.
- The home is "tainted" once you cash-out. Once a Texas homestead has been the subject of a 50(a)(6) cash-out, every future refi on that property must be done as 50(a)(6) until the lien is fully paid off. You cannot go back to a "regular" rate-and-term while a 50(a)(6) lien remains.
- 12-day right of rescission. Texas adds a 12-day right of rescission on top of the federal 3-day right. You cannot close until at least 12 days after you sign the cash-out disclosures.
The tainted-property rule matters. If you do a cash-out today, then rates drop in 18 months and you want to refi to a lower rate, you are stuck doing another 50(a)(6) refi (which carries higher rates and the $7,500 fee cap eats into your savings). Plan the cash-out carefully. Use it once for the largest amount that makes sense, rather than doing multiple smaller pulls.
Common Uses That Make Sense
Home improvement with measurable ROI. Kitchen, primary bath, or full-home renovation in a Houston market where remodeled homes sell at a meaningful premium. The improvement adds value, and mortgage interest on the renovation portion remains tax-deductible.
High-interest debt consolidation. If you are carrying $40K in credit card debt at 22%+ APR, swapping it for an additional $40K on your mortgage at 7% can save thousands per year in interest. Only works if you change the spending behavior that produced the debt.
Down payment on investment property. Texas cash-out funds can be used to buy a rental in a different state, a vacation rental, or a second Houston investment. The yield on the investment needs to exceed the marginal cost of the cash-out interest.
Starting or capitalizing a business. Some Houston business owners use a cash-out to fund inventory, equipment, or expansion. Better terms than a business loan, but with the risk that the home secures the debt.
Common Uses That Often Don't
Funding lifestyle. Vacations, dining, general living expenses. The cash runs out, the home debt remains. This is the textbook bad use case.
Luxury purchases. Boats, jet skis, exotic cars. Depreciating assets paid for by 30-year debt is rarely good math.
Volatile investments. Crypto, single stocks, margin plays. Your home should not be the down payment on a bet. If the investment loses 50%, you still owe the cash-out balance with your home on the line.
"Investing the difference." Some advisors suggest pulling cash out of a low-rate mortgage to invest in the market. The math can work in theory; in practice, the discipline rarely holds and the spread tightens as cash-out rates rise.
The Math
Real Houston example. Your home is worth $500,000. You owe $200,000 on the first mortgage at 4.5%. Your current P&I payment is roughly $1,520 a month.
You do an 80% LTV cash-out. New loan: $400,000 at 7%. Cash to you at closing: $200,000 minus closing costs (capped at $7,500). Net cash in hand: roughly $192,500.
New P&I payment: about $2,661 a month. Monthly payment delta: about $1,141 more per month than you were paying.
That $1,141 additional payment buys you $192,500 in liquid cash. If you use that cash for a renovation that adds $200K to the home's value, the math is straightforward. If you use it to pay off $40K in credit card debt at 22% APR, you save roughly $735 a month in credit card interest, so your real monthly cost net of the credit card savings is around $400 for the remaining $150K of usable cash. Different uses, different math, different conclusions.
Rate disclaimer: Rates shown for illustrative purposes. Your actual rate depends on credit score, LTV, DTI, loan amount, and program. Subject to change daily.
The Bundle does not apply to a cash-out refi. The InSync Bundle ($7,500 back at closing) is for buyers who pair their real estate purchase with their mortgage through InSync. A refinance is mortgage only. We still offer competitive lender credits within the Texas $7,500 fee cap.
Ben Helstein | NMLS# 1577314 | InSync Homes & Loans | Equal Housing Opportunity