Texas Cash Out Refinancing in 2025: Your Complete Guide

1. What Is a Cash-Out Refinance?

A cash-out refinance lets you replace your current mortgage with a new one for a higher amount, giving you access to the difference in cash. This is a smart way to use the value of your home while staying put.

For Example:

Imagine you own a home worth $400,000, and you owe $200,000 on your current mortgage.

With Texas’s 80% loan-to-value (LTV) cap, you can refinance up to $320,000.

After paying off your existing loan, you’ll have $120,000 available to use, minus closing costs.

2. Why Is Cash-Out Refinancing So Popular in Texas Right Now?

1. Texans Have More Home Equity Than Ever

• Texas home values rose 42% between 2020 and 2024, giving homeowners more tappable equity.
  
  
• As of 2025, the average Texas homeowner has over $100,000 in tappable equity. Between 2020 and 2024, home values in Texas increased by 42%, creating significant equity for homeowners.

Example:

A home purchased in 2018 for $300,000 might now be worth $450,000. With an outstanding mortgage balance of $200,000, the homeowner could access up to $160,000 in cash.

2.  Refinancing Beats Buying in Today’s Market

• With current mortgage rates hovering around 6%-7%, many homeowners prefer refinancing over selling, as moving would mean taking on a new, higher-interest mortgage.

Example:

Instead of selling and buying a new home with a higher rate, you can stay in your current home and access funds for renovations, investments, or other needs.

3. How Much Can You Borrow? (Understanding the 80% Rule)

• Texas law caps cash-out refinances at 80% of your home’s appraised value, ensuring homeowners retain at least 20% equity.

Example:

If your home is worth $500,000, the maximum loan amount you can refinance is $400,000 (80%).

If you owe $250,000, you can take out $150,000 in cash, minus closing costs.

4. What Can You Do With the Cash?

1. Pay Off High-Interest Debt

Use cash-out refinancing to consolidate high-interest credit cards or personal loans into one lower-interest mortgage payment.

Example:

If you have $40,000 in credit card debt at 18% interest, refinancing into a mortgage at 7% interest could save you hundreds of dollars in monthly payments.

2. Renovate Your Home

Invest in home improvements to increase your property value or lower your energy bills.

Example:

A homeowner uses $50,000 to upgrade their kitchen and add solar panels. This not only improves the home's value but also qualifies for energy efficiency tax credits.

3. Emergency Expenses

Access funds for unexpected medical bills or other urgent needs.

Example:

A homeowner facing $30,000 in medical bills can use a cash-out refinance to pay the amount without dipping into savings.

4. Investments

Purchase a rental property for passive income.

Invest in the stock market or other ventures.

5. What Protections Does Texas Offer Homeowners?

Texas has some of the strictest rules in the U.S. to protect homeowners:

- 80% Loan-to-Value (LTV) Cap

Borrowers cannot refinance more than 80% of their home’s appraised value.

Example: On a home worth $400,000, the maximum refinance amount is $320,000.

- One Loan Per Year Rule

Only one cash-out refinance is allowed every 12 months.

Example: If you refinanced in March 2024, you cannot take out another cash-out loan until March 2025.

- Non-Recourse Loans

Lenders can only seize the property in case of default. Personal assets are protected.

Example: If you owe more than your home is worth after refinancing, the lender cannot pursue your savings or other assets.

6. Is Cash-Out Refinancing Worth It? Let’s Weigh the Pros and Cons

Why It’s a Great Option

• Lower Borrowing Costs: Mortgage rates are usually much lower than credit card or personal loan rates.

• Flexibility: Use the cash for virtually any purpose, from debt consolidation to investing.

Why You Should Be Cautious

• Higher Payments: Borrowing more increases your monthly mortgage payment.
  Adding $50,000 to your mortgage at 7% interest increases your monthly payment by about $332.

• Closing Costs: Expect to pay 2%-5% of your loan amount, which reduces the cash you’ll receive.

What Are Your Other Options if Cash-Out Refinancing Isn’t Right?

1. Home Equity Loan

Take out a second loan while keeping your current mortgage.

Example: Borrow $50,000 at a fixed rate, with predictable monthly payments.

2. Home Equity Line of Credit (HELOC)

A flexible credit line you can draw from as needed.

Example: Use $10,000 for home repairs this year and $20,000 for tuition next year.

3. Personal Loan

No home equity required, but expect higher interest rates.

Example: Borrow $25,000 at 12% interest for emergency expenses.

Texas Homeowner Success Story: Unlocking the Power of Cash-Out Refinancing

Meet the Johnsons, a family of four living in Austin, Texas. With rising home values in 2025 and a need to consolidate debts and plan for the future, they decided to explore cash-out refinancing. Here's their journey.

A Growing Opportunity in Home Equity

The Johnsons purchased their home in 2018 for $300,000. Over the years, thanks to Austin's booming real estate market, their property value had climbed to $500,000.

• With a remaining mortgage balance of $250,000, they realized they had a significant amount of untapped equity.

• Under Texas’s 80% loan-to-value (LTV) rule, they could refinance up to $400,000 of their home’s appraised value.

• This meant they could access $150,000 in cash after paying off their existing mortgage balance.

How They Used the Cash-Out Funds

1. Paying Off High-Interest Credit Card Debt: $50,000

Like many families, the Johnsons had accumulated credit card debt over the years - $50,000 across multiple cards with an average interest rate of 18%. Their monthly payments were draining nearly $900 from their budget.

By rolling this debt into their mortgage through the cash-out refinance, they locked in a much lower interest rate of 7%.

This move reduced their monthly debt-related expenses by over $500, giving them much-needed financial relief.

2. Renovating Their Kitchen with Energy-Efficient Upgrades: $40,000

The Johnsons had always dreamed of modernizing their 1990s-style kitchen.

With part of the cash-out funds, they installed sleek new cabinets, granite countertops, and energy-efficient appliances like a smart refrigerator and induction cooktop.

Their home’s market value increased by an estimated $60,000, effectively turning the renovation into a profitable investment.

The energy-efficient upgrades cut their utility bills by 15%, saving them an additional $600 annually.

3. Investing in a Rental Property: $60,000

The Johnsons used the remaining cash to make a down payment on a small rental property in a nearby suburb.

With the growing demand for housing in Texas, they quickly secured tenants, generating a monthly rental income of $1,200.

The Long-Term Payoff:

• The rental property is already appreciating in value, aligning with Texas's upward real estate trend.

• The passive income stream now contributes to their mortgage payment, giving them more financial stability.

The Outcome: A Transformed Financial Landscape

Thanks to their cash-out refinance, the Johnsons accomplished the following:

• Lower Monthly Debt Payments: By consolidating their credit card debt, they saved over $500 monthly.

• Increased Home Value: Their kitchen renovation boosted their property’s worth by $60,000, creating additional equity.

• New Income Stream: The rental property now generates $14,400 annually, supplementing their household income.

What started as a way to consolidate debt turned into a strategy for building wealth and securing their financial future.

Key Takeaways for Texas Homeowners

• Understand the Rules: In Texas, the 80% LTV cap ensures homeowners retain equity while accessing cash.
  
  
• Plan Your Goals: Use the funds strategically - whether for debt consolidation, home improvement, or investment opportunities.

• Work with Experts: A knowledgeable mortgage broker can help you navigate the process and secure the best terms.