Texas homeowners are sitting on record levels of home equity. Austin, Dallas, and Houston all saw 30%+ appreciation since 2020. A lot of that equity is just sitting there doing nothing.
If you're thinking about accessing it, you've got two main tools: a cash-out refinance or a HELOC. They're both debt, but they're very different instruments. Here's how to pick.
The Quick Cheat Sheet
| | Cash-Out Refi | HELOC | |---|---|---| | Structure | New first mortgage, bigger than old one | Separate line of credit, second position | | Rate | Fixed (usually) | Variable (usually) | | Payment | New P&I on full new balance | Interest-only during draw period | | Closing costs | 2-5% of loan amount | Low ($0-2,000 typical) | | Access | One lump sum at close | Credit line you draw on as needed | | Best when | You need money NOW, and rates are favorable | You might need money sometime, flexibility matters |
When a Cash-Out Refi Wins
Scenario 1: Your current rate is similar to or higher than current market rates.
If you have a 7.5% mortgage and cash-out refi rates are 7.25%, you're trading one for a better one — the "cash-out premium" is essentially free.
If you have a 3.5% mortgage from 2021 and cash-out rates are 7.25%, a cash-out is usually a terrible idea. You'd be giving up your low rate to unlock cash. Nearly always, a HELOC is better in this scenario.
Scenario 2: You need $75K+ of equity deployed into one specific thing.
Big home renovation, investment property down payment, medical expense, consolidating $80K of credit card debt. When the use is known and sizable, the fixed-rate certainty of a cash-out is worth it.
Scenario 3: You want the discipline of a fixed payment.
Some people do better with a fixed monthly payment that pays the debt down. HELOCs can become a trap if you only pay the interest-only minimum for years.
When a HELOC Wins
Scenario 1: You might need money, but aren't sure how much or when.
Kitchen remodel quote came in at $45K but you suspect there will be scope creep. HELOC lets you draw the first $30K now, come back for the rest next quarter. Cash-out locks you into a specific amount today.
Scenario 2: Your current mortgage rate is low.
This is the #1 reason HELOCs are popular right now. If you have a 3-4% first mortgage, you don't want to touch it. A HELOC lets you access equity without refinancing the whole thing.
Scenario 3: Short-term bridging.
You're buying your next home before selling your current one. HELOC gives you flexibility to tap equity for the down payment, then pay it back when the old house sells.
The Debt Consolidation Case
Here's where I see the most client confusion.
You have $30K of credit card debt at 22% interest. Minimum payments are $750/month, mostly interest. You have $150K of equity in your home.
Rolling it into a cash-out refi might look like:
- New loan rate: 7%
- Monthly on the $30K portion: ~$200 (at 30 year amortization)
- You save ~$550/month on the debt payment
- BUT you've extended the debt over 30 years
Rolling it into a HELOC might look like:
- HELOC rate: 8.5% variable
- Interest-only payment on $30K: ~$213/month
- You save ~$537/month
- You can aggressively pay down the principal while saving $500+/month
In almost every debt consolidation scenario I see, I'd rather the client do the HELOC route with a written plan to pay the principal down in 3-5 years. The cash-out looks better on paper but turns $30K of credit card debt into a 30-year financed commitment.
Texas-Specific Rules to Know
Texas has constitutional restrictions on home equity lending (Section 50(a)(6)) that make us different from most states:
- Maximum LTV on cash-out refi: 80%. In other states you can go higher. Not here.
- 12-day cooling-off period between application and closing on home equity loans (including cash-out refis)
- Strict fee limits — fees on a 50(a)(6) loan can't exceed 2% of the loan amount
- Mandatory 12-month seasoning on a new first mortgage before you can refinance it as 50(a)(6)
These aren't deal-killers, but they mean Texas home equity lending takes a bit more planning than elsewhere.
Three Questions to Ask Yourself
Before you pick, answer these honestly:
- Is this money for a specific, defined purpose, or a "we might need flexibility" situation? Defined → cash-out. Flexibility → HELOC.
- What's my current first mortgage rate? Below 5% → almost always HELOC. Above 6% → cash-out may win.
- Can I discipline myself to pay principal on a HELOC? If no, take the cash-out or don't take either.
The Option Most People Skip: Don't Tap Equity
A lot of my clients come in ready to pull equity and leave without doing it. That's fine. Sometimes the right answer is to stay put and pay down what you have.
The equity in your home is real wealth. Treat it like wealth — not an ATM.
If you want to run the math on your specific numbers, book a call. We'll do it with real rates, real payments, and zero pressure to pull the trigger.