The one-line answer
Hold a first mortgage well below today's rates? HELOC. You keep the 3% mortgage and pay interest only on the equity you actually use. Rate at or above today's market, or you need every dollar at once with a fixed payment? Cash-out refinance. You trade your old rate for a new one, but the whole structure is simpler and fixed.
Side by side
| Feature | HELOC (50(t)) | Cash-out refinance (50(a)(6)) |
|---|---|---|
| Structure | Revolving second lien | New first mortgage |
| Rate type | Variable (index + margin), optional fixed draws | Fixed or ARM |
| First mortgage | Untouched | Replaced |
| Interest charged on | Balance drawn | Entire new loan balance |
| Equity cap | 80% CLTV — full line counts | 80% CLTV |
| Closing costs | Capped at 2%; often lower in dollars | Capped at 2% of the full loan amount |
| Timeline | ~3–5 weeks (12-day disclosure + 3-day rescission) | ~3–6 weeks (same Texas rules + full refi underwriting) |
| Payment shape | Often interest-only during draw, then amortizes | Fully amortizing from day one |
| Prepayment penalties | Prohibited in Texas | Prohibited in Texas |
| Best for | Staged spending, standby liquidity, low existing rate | One-time need, payment certainty, rate improvement |
Both structures inherit Texas's one-home-equity-loan-per-12-months rule, so you can't close both in the same year on the same homestead.
The math that decides it
Run this comparison before choosing: take your current first-lien balance and rate, then price two futures. Path one: keep the first lien, add a HELOC sized to your cash need, and pay interest only on what you draw. Path two: refinance the entire balance at today's rate plus the extra cash, and pay that new rate on every dollar you already owe.
The wider the gap between your existing rate and today's market, the more Path two's "blended up" cost eats the benefit. When your existing rate is close to the market, Path two's simplicity and fixed payment start winning — and dropping FHA mortgage insurance in the refinance can tip it further.
When the HELOC wins
- Your first mortgage is meaningfully below today's rates and you don't want to give it up.
- Your spending is staged — a renovation in phases, tuition over four years, a down payment on a future investment property.
- You want standby liquidity: an approved line costs nothing until you draw it.
- You only expect to carry the balance for a few years and can tolerate (or hedge with fixed draws) a variable rate.
When the cash-out refinance wins
- Your existing rate is at or above today's market — there's no rate worth protecting.
- You need the full amount today and want one fixed payment, not a line that reprices.
- You want to consolidate other debt into a single amortizing mortgage payment.
- You're also changing programs — for example, dropping FHA mortgage insurance or extending the term to lower the payment.
Texas rules both options share
- 80% combined loan-to-value cap on your primary homestead — no exceptions for either structure.
- One home equity transaction per 12 months per property.
- 12-day disclosure period before closing and a 3-day right of rescission after.
- 2% cap on non-interest closing costs.
- Primary homestead only — second homes and Texas rentals use different programs, typically to 70–75% LTV.
Deeper dives on each structure: the Texas HELOC guide, the Texas cash-out refinance guide, and the Texas home equity overview.
A third option most homeowners forget
If your equity is substantial and your goal is simplicity, a fixed-rate home equity loan (closed-end second lien) splits the difference: it leaves your first mortgage alone like a HELOC, but carries a fixed rate and fixed payment like a refinance. It loses the re-draw flexibility, so it fits a known, one-time cost at a rate you want locked. It's covered alongside the other two in the Texas home equity guide.
Frequently asked questions
Is a HELOC or cash-out refinance better in Texas?
If your first mortgage rate is meaningfully below today's market, a HELOC usually wins because it leaves that rate untouched. If your current rate is at or above today's market, or you want payment certainty on the full amount, a cash-out refinance is often cheaper over the life of the loan.
Do both a HELOC and a Texas cash-out refinance have the 80% limit?
Yes. Texas caps total homestead mortgage debt at 80% of appraised value whether you use a 50(a)(6) cash-out refinance or a 50(t) HELOC. With a HELOC, your entire approved line counts against the cap — not just what you draw.
Which closes faster in Texas — HELOC or cash-out refinance?
Both carry Texas's 12-day home equity disclosure period and a 3-day right of rescission, so timing is similar — roughly three to five weeks. A cash-out refinance adds full first-mortgage underwriting, which can stretch the timeline slightly.
Are closing costs different between a HELOC and cash-out refinance?
Texas caps non-interest closing costs on both at 2% of the loan amount. In practice, a HELOC's costs are lower in dollar terms because the loan amount is smaller — and some HELOC lenders cover many costs to compete for the line.
Does one affect my credit or taxes differently?
Both appear as mortgage liens on your credit. For taxes, interest deductibility generally depends on how the proceeds are used, not which product you chose — confirm with your CPA.
Can I switch from a HELOC to a cash-out refinance later?
Yes, subject to the 12-month Texas home equity seasoning rule and your equity position. Keep in mind that paying off a 50(t) HELOC with a new 50(a)(6) refinance starts the Texas home equity clock again on the new loan.
Investor or self-employed?
Texas 50(a)(6) and 50(t) rules govern your homestead. Rental properties and self-employed files work under different rules:
Qualify a rental on its own rent instead of your tax returns.
Use 12–24 months of business deposits as qualifying income.
Six line-by-line ratio calculations across Texas metros.
Deposit math, expense factors, and 12 vs 24 month options.
Asset depletion, 1099-only, P&L, ITIN and foreign national paths.
Estimate your ratio from rent and total housing expense.
This page is educational and not a commitment to lend, an offer of credit, or legal or tax advice. Program terms, rates, and guidelines vary by lender and are subject to change. Consult your CPA or attorney about your situation.