Refinance Loans

Refinance Loan Options: Rate & Term vs. Cash-Out

Refinancing your mortgage can help you lower your interest rate, reduce monthly payments, or access your home’s equity for other financial goals. There are two primary types of refinancing: Rate & Term Refinance and Cash- Out Refinance. In Texas, homeowners must follow the Texas 50(a)(6) law for cash-out refinances, which imposes specific restrictions.

1️⃣ Rate & Term Refinance

A Rate & Term Refinance allows homeowners to replace their existing mortgage with a new one—typically to lower the interest rate, adjust the loan term, or switch loan types (e.g., from FHA to Conventional). No cash is taken out beyond what’s needed to cover closing costs.

✔ Key Benefits:

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Lower Your Interest Rate

– Reduce your monthly payment and total interest paid over time.

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Change Your Loan Term

– Shorten your loan term (e.g., from 30 years to 15 years) to pay off the mortgage faster.

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Switch Loan Types

– Move from an adjustable-rate mortgage (ARM) to a fixed-rate loan for stability.

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Remove Mortgage Insurance

– If you have an FHA loan, refinancing into a Conventional loan can eliminate monthly mortgage insurance (PMI/MIP) once you reach 20% equity.

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No Cash-Out Limitations

– Because no funds are withdrawn beyond closing costs, Texas 50(a)(6) restrictions do not apply.

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Best For:

Homeowners who want to lower their rate, adjust their loan term, or remove mortgage insurance without taking out cash.

2️⃣ Cash-Out Refinance (Subject to Texas 50(a)(6) Rules)

A Cash-Out Refinance allows homeowners to tap into their home’s equity by refinancing for a higher loan amount than what is currently owed and receiving the difference in cash.

✔ Key Benefits:

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Access Home Equity

– Use cash for home improvements, debt consolidation, investments, or major expenses.

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Combine Debt into One Loan

– Pay off high-interest credit cards, personal loans, or student debt with a lower mortgage rate.

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Potential Tax Benefits – Interest on funds used for home improvements may be tax-deductible (consult your tax advisor).

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Stable Fixed-Rate Option

– Lock in today’s interest rates for predictable payments.

⚠ Texas 50(a)(6) Law & Cash-Out Refinances

Texas has strict rules regarding cash-out refinances to protect homeowners. If your refinance falls under Texas 50(a)(6) (home equity loan laws), the following restrictions apply:

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Once a Texas Cash-Out Loan, Always a Texas Cash-Out Loan – Even if you refinance later, it will still be classified under 50(a)(6) rules.

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80% Loan-to-Value (LTV) Cap – You cannot borrow more than 80% of your home’s appraised value.

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12-Day Waiting Period – There is a mandatory 12-day disclosure period before closing.

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One Cash-Out Loan Per Year – Texas law limits cash-out refinances to once per 12-month period.

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No Secondary Liens Allowed – You cannot have two home equity loans at the same time.

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Best For:

Homeowners in Texas who want to access their home equity while following 50(a)(6) guidelines.

💰 Which Refinance Loan is Right for You?

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Want to lower your rate or shorten your loan term?

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Rate & Term Refinance

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Need cash for home improvements, debt consolidation, or major expenses?

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Cash-Out Refinance

(Subject to Texas 50(a)(6) laws)

Not sure which refinance option is best for you?

Let’s review your financial goals and find the best loan for your needs!