A cash-out refinance lets you replace your existing mortgage with a larger loan and receive the difference in cash at closing. You keep one monthly payment, one interest rate, and one lender — but your loan balance increases to reflect the equity you’ve withdrawn.
For many homeowners, it’s one of the most practical ways to access equity without selling the property. For Texas homeowners specifically, it comes with state constitutional rules that every borrower needs to understand before applying.
This guide explains how cash-out refinance rates are priced, how they compare to a rate-and-term refinance, what it takes to qualify, and how much cash you can realistically pull out based on your home’s value and loan program.
Key Takeaways
• Cash-out refinance rates typically run 0.25–0.50 percentage points higher than rate-and-term refinance rates.
• Most conventional cash-out programs limit borrowing to 80% of the home’s appraised value.
• Texas homeowners are subject to Section 50(a)(6) of the Texas Constitution — 80% LTV cap, 2% fee cap, 12-day wait.
• Credit score, DTI, LTV, loan amount, and property type all affect the rate offered.
• A cash-out refinance replaces your existing mortgage — it is not a second loan and is not a HELOC.
What Is a Cash-Out Refinance?
A cash-out refinance replaces your existing mortgage with a new, larger loan. The new loan pays off your current mortgage balance. Whatever remains above that payoff amount, up to your maximum allowable loan-to-value, comes back to you as cash at closing.
Here’s a simple example:
• Home value: $450,000
• Current mortgage balance: $200,000
• Maximum new loan at 80% LTV: $360,000
• Cash available before closing costs: $160,000
The result is a new mortgage at your current balance plus the amount you’ve taken out. Your monthly payment, interest rate, and loan term all reset under the new loan.
This differs from a rate-and-term refinance, which adjusts your mortgage rate or loan term without increasing the balance. It also differs from a home equity line of credit (HELOC), which is a second loan that sits alongside your existing mortgage rather than replacing it. See our comparison of rate-and-term vs. cash-out refinancing for a full side-by-side breakdown: championsmortgageteam.com/blog/rate-term-vs-cashout-refinance
How Cash-Out Refinance Rates Are Priced
Why Cash-Out Rates Run Higher Than Regular Refinance Rates
Cash-out refinance rates are not the same as standard refinance rates today. Lenders consistently price cash-out loans at a premium, typically 0.25 to 0.50 percentage points above rate-and-term refinance rates — for a straightforward reason: the borrower is leaving with more debt against the property.
When you pull equity out, the new loan-to-value ratio is higher than it would be on a simple rate-and-term refi. A higher LTV means greater lender risk if the borrower defaults or home values decline. That additional risk is priced into the mortgage rate.
The premium also reflects Fannie Mae and Freddie Mac pricing adjustments. Conventional cash-out refinances carry loan-level price adjustments (LLPAs) that vary by LTV, credit score, and loan purpose. These add to the effective rate the borrower sees.
Factors That Affect Your Individual Cash-Out Refinance Rate
Your cash-out refinance rate depends on several variables specific to your financial situation:
Credit score. Borrowers with higher credit scores consistently receive lower interest rates. A score above 740 typically qualifies for the most favorable pricing. Scores below 680 will see a meaningful rate premium, and some lenders impose minimum credit score floors for cash-out programs.
Loan-to-value ratio. The more equity you retain after refinancing, the lower your rate tends to be. A borrower refinancing to 60% LTV will almost always get a lower rate than one refinancing to 80% LTV, because the lender has more collateral protection.
Loan amount. Very large loans (jumbo territory) are priced differently than conforming loans, and the total dollar amount of cash taken out can influence the rate on some programs.
Property type and occupancy. Primary residence cash-out refinances are priced more favorably than second homes or investment properties. Investment property cash-out refinances carry significantly higher rates and tighter LTV limits — typically 70 to 75% maximum rather than 80%.
Loan term. A 15-year cash-out refinance loan will generally carry a lower rate than a 30-year loan. The shorter term means less interest-rate risk for the lender.
Market conditions. Cash-out refinance rates today move with broader interest rate trends — Federal Reserve policy, inflation data, and bond market activity all influence where refinance rates land on a given week.
No lender can guarantee a specific rate before reviewing your full application. Rates shown in advertisements reflect sample scenarios and will vary based on your individual credit profile, property, and loan amount.
How Much Cash Can You Take Out?
The amount of cash available through a cash-out refinance depends on your home’s appraised value, your current mortgage balance, and the maximum LTV allowed by your loan program.
| Loan Program | Primary Residence Max LTV | Second Home Max LTV | Investment Property Max LTV |
|---|---|---|---|
| Conventional | 80% | 75% | 70–75% |
| FHA | 80% | Not available | Not available |
| VA (most states) | 90–100% (lender caps vary) | N/A | N/A |
| Texas (all programs — primary) | 80% (constitutional cap) | N/A | N/A |
Worked example — Texas primary residence:
• Home appraised value: $500,000
• Maximum loan at 80% LTV: $400,000
• Current mortgage balance: $225,000
• Cash available before closing costs: $175,000
Closing costs typically run 2–5% of the new loan amount and can be rolled into the loan or paid at closing. Rolling them in means you pay interest on those costs over the life of the loan. Use a refinance calculator to model both scenarios before deciding.
Requirements to Qualify for a Cash-Out Refinance
Credit Score
Most conventional cash-out refinance programs require a minimum credit score of 620, though lenders may set higher minimums as overlays. Scores above 700 will generally access better pricing and fewer restrictions. The specific requirement depends on the loan program, lender, and loan-to-value ratio. Confirm the exact minimum with your loan officer.
Debt-to-Income Ratio (DTI)
Lenders evaluate your total monthly debt obligations against your gross monthly income. Most conventional programs allow a maximum DTI of 45–50%, though this varies by loan program and automated underwriting. Your new, higher monthly mortgage payment after the cash-out refinance will be factored into this calculation — a larger loan means a larger payment, which affects your qualifying DTI.
Home Equity
You must have sufficient equity to support the new loan. For most conventional programs, you must retain at least 20% equity after the refinance, meaning you can borrow up to 80% of the home’s appraised value. The appraisal is ordered after you apply and determines the loan-to-value calculation.
Seasoning Requirements
Most programs require you to have owned and occupied the property for at least 12 months before completing a cash-out refinance. Some programs allow shorter seasoning in specific situations. If you recently purchased the home, confirm the seasoning requirement before applying.
Loan Purpose Documentation
Lenders may ask how you intend to use the cash. Common purposes include home improvements, debt consolidation, education funding, or building reserves. Most programs do not restrict the use of funds, but having a clear purpose is helpful during underwriting.
Texas Cash-Out Refinance Rules: What Homeowners Must Know
Texas is the only state in the country that writes home equity lending rules into its constitution. Article XVI, Section 50(a)(6) of the Texas Constitution governs every cash-out refinance on a Texas homestead — and the rules are stricter than any other state.
If you own a primary residence in Texas and want to do a cash-out refinance, these rules apply regardless of which lender you use or which loan program you choose.
Texas Section 50(a)(6) — Key Rules at a Glance
80% LTV cap — no exceptions, written into the state constitution
2% fee cap on lender charges (excludes appraisal, title, survey, attorney fees)
12-day mandatory waiting period before closing — cannot be waived
Once-per-year limit — one 50(a)(6) loan per homestead per calendar year
FHA cash-out is NOT permitted on Texas homesteads
VA cash-out in Texas is subject to the same 80% LTV cap
The 80% LTV Cap — No Exceptions
Texas law limits cash-out refinancing on homestead properties to a maximum loan-to-value of 80%. You must retain at least 20% equity in the home after closing. This limit is written into the Texas Constitution and cannot be waived by any lender or loan program.
On a $400,000 Texas home with a $180,000 mortgage balance, your maximum new loan is $320,000 (80% of $400,000). You could access up to $140,000 in cash, minus closing costs.
The 2% Fee Cap
Texas law limits total lender fees on a Section 50(a)(6) cash-out loan to 2% of the loan amount. This cap does not include third-party costs such as appraisal fees, title insurance, survey fees, or attorney fees — but it does limit origination and lender-charged costs. For borrowers, this is a meaningful protection that does not exist in other states.
The 12-Day Waiting Period
Texas requires a mandatory 12-day waiting period between the time you apply for a cash-out refinance and when the loan can close. This cooling-off period is constitutional, not just regulatory, and no lender can waive it. If you’re on a tight timeline, factor this into your planning.
The Once-Per-Year Rule
Texas allows only one Section 50(a)(6) loan per homestead per year. You cannot complete two cash-out refinances on the same Texas homestead property within a 12-month period.
A Note on FHA and VA Cash-Out Refinances in Texas
FHA cash-out refinance: Texas law prohibits FHA cash-out refinances on homestead properties. If you want to tap equity on a primary residence in Texas, a conventional cash-out is the standard path.
VA cash-out refinance: VA cash-out refinancing is available in Texas, but it is still governed by Section 50(a)(6) rules. The VA typically allows cash-out refinancing up to 90–100% LTV in other states, but in Texas, the constitutional 80% LTV cap applies to VA loans as well. The VA’s higher LTV allowance does not override state law.
Not every lender offers Section 50(a)(6) loans. Working with a lender experienced in Texas cash-out transactions reduces the risk of delays or last-minute restructuring at closing.
Cash-Out Refinance vs. Rate-and-Term Refinance
A rate-and-term refinance changes your mortgage rate, loan term, or both — without increasing your loan balance. A cash-out refinance increases your balance by the amount you withdraw.
| Feature | Rate-and-Term Refinance | Cash-Out Refinance |
|---|---|---|
| Loan balance | Stays the same or decreases | Increases |
| Cash received | None | Yes — at closing |
| Mortgage rate | Typically lower | Slightly higher |
| Equity requirement | Less strict | Must retain 20% (most programs) |
| Monthly payment | May decrease | Often increases |
| Best for | Lowering rate or term | Accessing equity |
For a full side-by-side analysis, see our guide to rate-and-term vs. cash-out refinancing: championsmortgageteam.com/blog/rate-term-vs-cashout-refinance
Cash-Out Refinance vs. HELOC: Which Makes More Sense?
A home equity line of credit (HELOC) is a second loan that gives you access to a revolving credit line based on your available equity. It sits alongside your existing mortgage rather than replacing it.
| Feature | Cash-Out Refinance | HELOC |
|---|---|---|
| Effect on existing mortgage | Replaces it entirely | Adds a second loan |
| Rate type | Usually fixed | Usually variable |
| Disbursement | Lump sum at closing | Draw as needed |
| Texas availability | Yes (with 50(a)(6) rules) | Limited — many lenders avoid TX HELOCs |
| Monthly payments | One payment | Two payments |
| Best for | Large, defined lump-sum need | Ongoing access to funds |
For Texas homeowners, the practical HELOC option is more limited than in other states. Many national lenders avoid Texas HELOCs entirely because of the state’s strict home equity rules, which makes a cash-out refinance the more accessible equity product for most Texas borrowers.
Cash-Out Refinance Loan Programs: Conventional and VA
Conventional Cash-Out Refinance
A conventional cash-out refinance follows Fannie Mae or Freddie Mac guidelines. The 80% LTV limit applies nationally, though specific pricing adjustments vary by credit score and LTV. For most borrowers with a primary residence, strong credit, and 20%+ equity remaining after the refinance, a conventional cash-out is the most straightforward option.
VA Cash-Out Refinance
Eligible veterans and active-duty service members may access cash-out refinancing through a VA loan. Outside of Texas, the VA program allows higher LTV limits than conventional programs. Inside Texas, the 80% constitutional cap applies to VA loans as well. VA cash-out refinances do not require private mortgage insurance, which can offset some of the rate premium for eligible borrowers.
Streamline Refinance: What It Is and What It Is Not
An FHA or VA Streamline Refinance is a rate-and-term refinance designed to reduce your rate and payment with reduced documentation. It is not a cash-out product. You cannot pull equity through a streamline refinance — the loan amount is limited to your existing balance plus allowable closing costs. If you want cash out, a streamline is not the right product.
What Does a Cash-Out Refinance Cost?
Closing costs on a cash-out refinance typically run 2–5% of the new loan amount. On a $350,000 refinance, that’s $7,000 to $17,500 in total closing costs. These can include:
• Loan origination fee
• Appraisal fee
• Title insurance
• Recording fees
• Prepaid interest and escrow setup
• Attorney fees (required in some states)
Texas-specific fee note: Texas law caps lender fees at 2% of the loan amount on Section 50(a)(6) cash-out loans. Third-party costs such as appraisal, title, survey, and attorney fees are not included in the 2% cap but are still standard closing costs the borrower pays.
You have two options: pay closing costs upfront, or roll them into the new loan. Rolling costs in means you pay interest on them for the life of the refinance. Paying upfront preserves a lower balance and reduces long-term interest cost. A refinance calculator can model the breakeven point for each option.
The Breakeven Analysis: When Does a Cash-Out Refi Make Sense?
If you’re refinancing at a higher rate than your current mortgage to access cash, the relevant question isn’t just “what’s the rate?” — it’s “what does this cost me over time?”
Simplified breakeven logic:
1. Calculate the new monthly payment on the higher loan amount.
2. Subtract your current monthly mortgage payment.
3. Divide the total closing costs by the monthly payment increase.
4. The result is your breakeven in months.
Refinance example:
• Current payment: $1,850/month (remaining balance: $220,000 at 4.5%)
• New loan: $350,000 at 7.0% (30-year) → estimated payment: $2,329/month
• Payment increase: $479/month
• Cash received: $130,000
In this scenario, the borrower pays $479/month more to access $130,000 in cash. Paying off 22% credit card debt with a 7% refinance rate is mathematically favorable. Funding discretionary expenses generally is not. A loan officer can run a customized calculator analysis for your specific numbers.
Common Mistakes Borrowers Make With Cash-Out Refinances
1. Not accounting for the rate premium. Borrowers sometimes expect their cash-out rate to match the standard refinance rates they see advertised. The cash-out rate will almost always be higher because it is a different loan product with higher risk pricing.
2. Pulling out more than needed. Borrowers pay interest on every dollar borrowed. Taking out $50,000 more than needed “just in case” costs real money each month and over the life of the refinancing loan.
3. Forgetting that the loan resets. A cash-out refinance starts a new loan term. If you’re 10 years into a 30-year mortgage and refinance into a new 30-year loan, you’ve extended your payoff date by 10 years. A 15-year or 20-year term may serve you better.
4. Ignoring Texas rules if you live in Texas. Many borrowers — and some lenders — underestimate how different Texas cash-out refinancing is from the rest of the country. The 80% LTV cap, 12-day waiting period, and other Section 50(a)(6) requirements need to be built into the process from day one.
5. Not getting multiple quotes. Cash-out refinance rates and lender overlays vary. A borrower who contacts only one lender may miss meaningfully better terms from another. Compare at least two to three quotes before committing.
Alternatives to a Cash-Out Refinance
A cash-out refinance isn’t the right tool for every situation. Consider these options:
Home equity loan. A home equity loan is a second loan based on your equity, typically at a fixed rate, paid out as a lump sum. It does not replace your current mortgage. If your existing mortgage carries a favorable lower interest rate, a home equity loan lets you tap equity without giving up that rate.
HELOC. A home equity line of credit gives revolving access to equity as needed. Variable rate, second lien. Texas HELOCs are limited in availability compared to other states.
Personal loan. For smaller amounts, an unsecured personal loan avoids putting your home at risk. Rates are higher than mortgage refinance rates, but the process is faster and the loan is not secured by the property.
Rate-and-term refinance. If your goal is to lower your monthly payment or pay off the loan faster — not access cash — a rate-and-term refinance achieves that without increasing your balance or triggering the cash-out rate premium.
Frequently Asked Questions
Are cash-out refinance rates higher than regular mortgage rates?
Yes. Cash-out refinance rates are typically 0.25 to 0.50 percentage points higher than rate-and-term refinance rates. The premium reflects the higher loan balance and increased lender risk when equity is withdrawn from the property.
What credit score do I need to qualify for a cash-out refinance?
Most conventional cash-out refinance programs have a minimum credit score requirement of 620, though individual lenders may set higher minimums. Borrowers with scores above 700–740 will generally qualify for better rates and fewer restrictions. Confirm specific requirements with your loan officer.
How much equity do I need for a cash-out refinance?
Most programs require you to retain at least 20% equity after closing, meaning you can borrow up to 80% of your home’s appraised value. Texas homeowners are subject to the same 80% limit by state constitutional law.
What is the Texas 50(a)(6) rule for cash-out refinancing?
Section 50(a)(6) of the Texas Constitution governs cash-out refinancing on Texas homestead properties. Key rules include: maximum 80% LTV, lender fee cap of 2% of the loan amount, mandatory 12-day waiting period before closing, and a limit of one Section 50(a)(6) loan per homestead per year.
Can I do an FHA cash-out refinance in Texas?
No. Texas law prohibits FHA cash-out refinances on homestead properties. Homeowners in Texas who want to access equity through refinancing typically use a conventional cash-out refinance.
How long does a cash-out refinance take?
Most cash-out refinances close in 30 to 45 days from application. Texas homeowners should account for the mandatory 12-day waiting period, which is built into the overall timeline. Appraisal scheduling, underwriting complexity, and title work can affect timing.
Is cash received from a cash-out refinance taxable?
Generally no — cash received from a cash-out refinance is not taxable income because it is borrowed money, not earned income. However, the deductibility of the mortgage interest on the increased balance depends on how the funds are used. Consult a qualified tax professional for guidance specific to your situation. This is not tax advice.
What’s the difference between a cash-out refinance and a home equity loan?
A cash-out refinance replaces your existing mortgage with a larger new loan. A home equity loan is a second loan that sits alongside your current mortgage. If your existing mortgage carries a lower interest rate you don’t want to give up, a home equity loan may be worth comparing.
Ready to Explore Your Cash-Out Refinance Options?
Champions Mortgage serves homeowners in Texas, Florida, Georgia, and North Carolina.
Our loan officers can review your current mortgage balance, estimated home value, and financial goals to give you a realistic picture of what a cash-out refinance could look like for your situation — including a rate estimate based on your actual credit profile.
There are no rate guarantees at this stage. Your final rate depends on your complete application and financial profile.
Speak with a loan officer: championsmortgageteam.com/contact
Texas homeowners: see our Houston cash-out refinance page for 50(a)(6)-specific guidance.
