U.S. homeowners today have around $320,000 in home equity on average, which makes it an appealing source of funds. Texas residents can tap into this wealth through a cash-out refinance, though the state's rules differ from the rest of the country.

Texas law allows homeowners to access up to 80% of their home's value through cash-out refinancing, with a requirement to keep at least 20% equity. These loans, which the Texas Constitution calls Section 50(a)(6) loans, come with specific rules that cover everything from waiting periods to closing costs.

This piece will help you decide if a cash-out refinance fits your needs in 2025's market. You'll learn how it stacks up against home equity loans, understand Texas's specific requirements, and get into what it all means when you tap into your home's equity.

Is cash-out refinance still a smart move in 2025?

Texas homeowners have built up substantial equity over the last several years. This makes 2025 a great time to think over a cash out refinance in Texas. Property values in the state jumped 42% between 2020 and 2024. Homeowners now have amazing opportunities to tap into their home's value.

How rising home values affect equity access

The huge jump in Texas home prices has given many homeowners a nice financial cushion. Right now, the average Texas homeowner can access more than $100,000 in tappable equity. Homes bought just a few years ago have grown a lot in value. To cite an instance, see a home bought in 2018 for $300,000 - it might be worth around $450,000 today. A homeowner with a $200,000 mortgage balance could potentially get up to $160,000 in cash through refinancing.

So many homeowners now lean toward cash-out refinancing instead of selling. Moving would mean taking on a new mortgage at today's higher interest rates.

What 2025 interest rates mean for refinancing

Mortgage rates in 2025 should stay around the 6 percent mark, much like 2024 levels. These rates substantially affect whether refinancing makes sense, especially if you locked in historically low rates during 2020-2021.

Homeowners with equity loans from 2023 or earlier might want to look into refinancing. The Federal Reserve's rate cuts in late 2024 changed the market landscape. However, more cuts in 2025 will likely happen more slowly.

Finding the best deal becomes crucial with a cash-out refinance. Since you're borrowing more money, getting the lowest possible rate can save you a lot in the long run.

Why Texas rules make this decision unique

Texas takes a more careful approach to home equity borrowing than other states. The state enforces an 80% loan-to-value cap. This means homeowners must keep at least 20% equity in their homes. Such rules help protect homeowners if the market takes a downturn.

Texas law also makes homeowners wait 12 months between cash-out refinances. This stops people from taking too much equity out of their homes.

A new constitutional amendment comes up for vote in November 2025. It could remove rules about where home equity loans must close (lender offices, attorney offices, or title companies). This change would make it easier for homeowners to access their equity.

Texas cash-out refinance vs. home equity loan

Texas homeowners should compare two different financial tools to tap into their home's equity. State regulations affect both options and your choice can have a big effect on your financial future.

How each option works in Texas

A cash-out refinance in Texas, officially called a Section 50(a)(6) loan, replaces your existing mortgage with a larger one. You get the difference between your new loan and original balance as cash at closing. Texas law limits these loans to 80% of your home's appraised value, so you must keep at least 20% equity. Let's say you have a $300,000 home - your maximum loan would be $240,000.

A home equity loan works as a second mortgage that sits next to your primary mortgage. You'll make two separate monthly payments - one for your original mortgage and another for your equity loan. Texas law applies the same 80% loan-to-value limit to these loans too.

Which is better for keeping your current mortgage rate

Home equity loans are the clear winner if you want to keep your existing mortgage rate. Yes, it is worth considering since Texas mortgage rates are around 7.007% for a 30-year fixed. Many homeowners who got rates below 5% in recent years don't want to refinance. A home equity loan lets you keep that great rate while still getting access to your equity.

A cash-out refinance means you'll need to get a new mortgage at today's rates. This could make your overall interest costs much higher if rates have gone up since you got your original mortgage.

When a home equity loan might be the smarter choice

Home equity loans make perfect sense if you've locked in a mortgage rate that's lower than what's available today. On top of that, if you need a smaller amount (usually less than $30,000) that you plan to pay back quickly, the home equity option might be more budget-friendly.

Your credit score can also help you decide. Cash-out refinances in Texas just need a minimum 620 FICO score, but home equity loans often ask for scores of 700 or higher. Home equity loans might have lower closing costs too, which makes them more economical for smaller borrowing needs.

Key rules and limits for Texas cash-out refinance

Texas has substantially different regulations for cash-out refinancing compared to most other states. These rules protect homeowners from taking on too much debt. Homeowners can still access their home equity under these guidelines.

Understanding the 80% loan-to-value cap

The life-blood of Texas cash out refinance regulations lies in the firm 80% loan-to-value (LTV) limit. Texas Constitution mandates this cap. Your borrowing cannot exceed 80% of your home's appraised value, which means you must keep at least 20% equity. Let's look at a real example - a home worth $500,000 would have a maximum loan amount of $400,000. This rule applies to everyone, whatever their credit score or income level. State law, not lender guidelines, enforces this restriction. The 80% LTV restriction stays in effect for all future transactions if you refinance this cash-out loan later.

What the 12-day letter means for your timeline

Texas lenders must give you a special disclosure notice as a separate document before closing a cash out refinance. This mandatory 12-day letter outlines your homeowner rights and explains what a cash-out refinance means for you. State law requires a 12-day "cooling period" between applying for your loan and closing. You'll have enough time to review the terms and rethink your decision. This timeline cannot be sped up, even in emergencies, unlike standard refinancing in other states.

Why you can't refinance again for 12 months

Texas law adds another key restriction beyond the 80% LTV cap and 12-day waiting period. Homeowners must wait 12 months after closing before getting another refinance. This one-year cooling-off period covers both cash-out refinances and standard rate-and-term refinances. This rule stops homeowners from repeatedly using their equity too quickly, which could lead to money problems. Every Texas lender must follow this rule strictly.

Risks and rewards of tapping your home equity

Cash-out refinancing in Texas gives you quick access to money but comes with the most important financial consequences. Federal Reserve research shows homeowners who use cash-out refinancing usually end up with longer loan terms and bigger monthly payments compared to their original mortgages.

How cash-out refinance affects your monthly payments

Your overall debt load increases with a cash-out refinance, which leads to higher monthly payments. Taking a bigger loan means you borrow against your home's value and increase your principal balance. Your monthly payment might be higher than your original home loan even with a longer repayment term. A cash-out refinance from late 2022 shows this is a big deal as it means that borrowers who got $36,000 in cash paid about $42,000 extra in interest just in the first seven years.

What happens if home values drop

The risk becomes serious especially when you have declining property values after using your equity. You could end up "underwater" and owe more than your home's worth. This negative equity makes it impossible to sell your home or refinance your mortgage until the market recovers. Texas handled the 2008 housing crisis better than other states because of its strict 80% loan-to-value limit. Market downturns still create problems for people who max out their borrowing capacity.

When using equity can backfire financially

Financial experts warn against using home equity to buy things that lose value like cars, vacations, or daily expenses. These purchases give short-term satisfaction but create long-term debt backed by your biggest asset. On top of that, it gets risky to use home equity for uncertain investments like business startups or real estate. Missing payments could lead to foreclosure since your home backs the loan. Smart financial management becomes crucial if you decide to tap into your home's equity.

Conclusion

Texas homeowners can still benefit from cash-out refinancing in 2025, but they need to think over market conditions and their situation first. Home values have gone up and created huge equity opportunities. Many homeowners can now access substantial funds through refinancing.

The market offers both good and bad news. Interest rates hover around 6 percent, making refinancing less appealing to homeowners who locked in lower rates over the last several years. Home equity loans might work better for people who want to keep their existing mortgage terms.

Texas has strict rules that protect homeowners from borrowing too much against their homes, with an 80% loan-to-value limit. These regulations mean you'll need to plan ahead and be patient when you go for a cash-out refinance. This becomes even more important when you have mandatory waiting periods and specific closing location requirements.

Your decision to use home equity should line up with your future money goals. You might want to fund home improvements, consolidate debt, or invest elsewhere. Learning about both benefits and risks helps you make smart choices. Your cash-out refinance's success depends on strong money management and picking the right time based on market conditions and your situation.