Texas Cashout Loans
Home Equity Loans in Texas
In the event that you are a homeowner seeking to refinance your home mortgage today via Texas cashout loans, you have two basic types of refinancing from which to choose: 1) a Rate and Term Refi, in which the mortgage rates and terms are refinanced enabling the borrower to lower interest rates to lower the monthly payment and/or shorten the term of the loan to build equity faster; 2) Cash-Out Refinancing, which allows the borrower to take cash out against accrued equity, putting cash in hand for use in other ways.
Homeowners today who find themselves in need of extra cash for various reasons can choose the second option of refinancing their mortgage. A Texas Cash-Out Loan allows the homeowner to use a substantial amount of built-up equity in the home to be eligible to refinance the loan for a lower interest rate and actually receive cash from some of the equity.
Let’s say, for example, that you owe $70,000 on a home valued at $165,000 and you want a lower interest rate. And you also want $30,000 in cash for various reasons. You can re-finance with a Texas cash-out loan in the amount of $100,000 ($70K, which you still owe, plus $30K, cash needed). If it works well, you get a better rate on the new loan and a cash of $30,000 upon closing on the new loan. In fact, you can borrow up to 80% (in this case, $56,000) of the current value of the property according to Texas law. However, keep in mind, that the amount of the new loan would reflect the amount of $126,000.
Texas law, Section 50(a)(6) specifies that Cash-Out Loans must be a fully amortizing mortgage with payments due on a monthly basis. The following three kinds of mortgages are eligible for Cash Out Refinancing:
• First liens only
• Fixed-rate mortgages
• Certain 5-,7-, and 10-year Adjustable Rate Mortgages (contact a lender for eligibility and clarification)
There are many reasons why a homeowner may choose a Cash-Out loan, which actually makes good financial sense in that lower mortgage interest rate on the home may be much more economical than borrowing for the new expense. These might include such expenditures as medical emergencies; the purchase of a new boat, auto, or some other expensive equipment; the rehab or remodeling of the property; college tuition and fees, and debt consolidation—to name only a few. For example, most credit cards today charge an interest rate of 15—22%. If the homeowner has a debt from several credit cards, he/she may want to consider a Texas Cashout Loans Refinance in order to pay off the credit cards at a mortgage interest rate as low as 4+ percent. There are no restrictions on what you can use the money for. A cash-out refinance is a way of getting a better rate of return on one’s money. An additional benefit is that money received on a cash-out refinance is not taxable. It is always best to consult a Tax Advisor to understand the tax implications.
In Texas, Home Equity Loans are considered Texas Cashout Loans aka Section 50(a)(6) loan. A home equity loan allows the homeowner to borrow a specific sum of money against the equity in his home for a set term at a fixed or variable rate.
• A home equity loan combines the original balance of the mortgage plus the amount a borrower will receive at closing into one new loan.
• Interest rates on a Cash-Out loan are usually higher than the interest rates on a rate and term refi loan.
• You pay closing costs can be rolled into the loan but it also lowers the amount a borrower can receive at closing. The total of the fees or closing costs cannot exceed 3% of the loan amount.
The Other States differ from Texas when it comes to a Home Equity Loan because it is treated differently from a cash-out refinance altogether. For them, Texas cashout loans are a separate loan on top of the first mortgage, hence, considered a second mortgage. In Texas, the original first mortgage has to be paid at closing and the home equity part is combined with the payoff of the first mortgage, creating a new mortgage loan.
Disadvantages of Texas Cashout Loans
Cash-Out Refinancing can provide homeowners with access to quick cash when they need it and with continued low mortgage interest rates. But there are some risks:
- When you cash out equity, you increase the amount of debt and erase the wealth or equity you have built in your home.
- New loan payments might be higher than your current mortgage payment.
- If the home value declines, you’re more likely to find it difficult to refinance or sell your home for what you owe.
- The deed of the property will reflect a home equity loan or a cash-out and will remain as such until the loan is paid in full. Thus, the phrase, “once a cash out, always a cash out”.
It doesn’t make sense to refinance at a higher interest rate. If your current mortgage is a lower rate than what you can get now by refinancing, it’s better to stick with your original loan. Or if you’re 20 years into a 30-year mortgage, most of your payment is going to the principal amount, so it might not make sense to refinance.
The Home Loan Specialists at AMCAP Mortgage can offer more information or professional advice regarding what is the best choice of mortgage for your situation. Call us now at (832) 356-5605 to get started.