Rate & Term Refinance vs Cash-Out Refinances in Texas

How Refinancing Works In Texas

Texas treats home equity differently than almost any other state. Cashing out equity is governed by Article XVI, Section 50 of the Texas Constitution, often called Section 50 a 6. A “Texas A6” loan is simply a home equity loan or cash out refinance that follows those rules.

Selling Guide

Because the homestead protections are so strong, Texas limits how often and how aggressively you can borrow against your equity. That is why the way your refinance is labeled on paper matters so much.

Two main refinance paths show up most often for our clients:

• A rate and term refinance
• A Texas cash out refinance, also called a Texas A6 home equity loan 

They may look similar at the closing table. They are not the same.

What Is A Rate And Term Refinance In Texas

A rate and term refinance changes the interest rate, the term, or both on your existing mortgage without giving you cash in hand from your equity.

Common reasons to choose a rate and term refinance in Texas include:

• Lowering your monthly payment
• Shortening your term to pay the home off faster
• Moving from an adjustable rate to a fixed rate
• Cleaning up an old A6 loan and turning it back into a “normal” refinance when the rules allow it

In many cases, a seasoned Texas A6 loan can be refinanced into a non home equity loan if certain conditions are met, such as waiting at least twelve months, not taking new cash out, and staying within the 80 percent combined loan to value cap.

That change can be a big deal. Once the old A6 is properly refinanced into a regular rate and term loan, you may regain the ability to add a future second lien or line of credit, depending on your situation and current Texas law.

What Is A Texas Cash Out Refinance Or A6 Loan

A cash out refinance in Texas replaces your existing mortgage with a larger one and gives you some of the equity back as cash at closing. Under Texas law this is usually an A6 home equity loan.

You might use a Texas A6 cash out to:

• Consolidate higher interest debt
• Fund home improvements
• Cover tuition, medical bills, or other large expenses

Because the state wants to protect homeowners from overleveraging their homestead, A6 loans come with guardrails. Examples include:

• You typically must keep at least 20 percent equity in your home after the cash out
• You can usually only do a Texas cash out on your homestead once in a twelve month period

The interest rate is usually a bit higher than a comparable rate and term refinance, often around zero point one to zero point two percent higher

None of that makes an A6 loan bad. When you intentionally choose a Texas cash out refinance with a clear game plan, it can be a powerful tool. The problem is when you end up with an A6 and never realized you had one.

Rate And Term Refinance vs Cash Out Refinance In Texas

Most Texans only need to understand one thing when refinancing. Did you change your loan to get better terms or did you pull equity out?

That difference decides whether your loan stays a standard refinance or becomes a Texas A6 cash out loan, and that label affects everything you can do later.

What a Rate And Term Refinance Really Means

A rate and term refinance only adjusts your mortgage.

You might:

• Lower your interest rate
• Reduce your monthly payment
• Shorten your loan term
• Switch from adjustable to fixed

You are not taking cash from your home. The focus is simply improving your loan.

What a Cash Out Refinance Really Means

A cash out refinance gives you money from your equity.

This includes:

• Getting cash at closing
• Paying off personal debts as part of the refinance
• Adding any amount to your loan that is not tied to your home

Once you receive equity in any form, the loan becomes a Texas A6. That classification follows strict state rules.

Why Pricing Is Different

• Rate and term loans usually have better pricing because they are not home equity loans.
• A6 cash out loans usually cost more because Texas applies additional protections to home equity lending.

Why This Matters For Your Future Options

This is where homeowners get caught off guard.

A standard rate and term refinance usually keeps your options open. You may still be able to get a HELOC or a small second loan later if your equity and timing qualify.

An A6 cash out limits your future choices. Texas law does not allow two A6 loans on the same home at the same time. If your current mortgage is labeled A6, you cannot add a HELOC or second lien. You must refinance the entire mortgage to remove the A6 label first.

The Real Problem Most Texans Run Into

Many people thought they did a simple refinance.

They later discover:

• Their loan was recorded as a Texas A6
• They are not allowed to add a second lien
• They cannot get a HELOC
• They must refinance their entire balance at today’s rates to access equity

One small detail at closing can lock you out of thousands of dollars of equity unless you start over with a new refinance. That is why understanding the difference is critical.

How Misclassified Texas A6 Loans Happen

In the conversation that inspired this page, Krystal talked about files she sees where the borrower swears they never took cash out. On paper the loan is clearly A6.

Here are a few common ways this happens:

• The prior lender treated every refinance in Texas as an A6 to stay conservative
• The title company recorded the deed of trust with an A6 designation even though the intent was a simple rate and term refinance
• A small non mortgage debt such as a credit card balance was rolled into the new loan amount and that pushed the file into A6 status

In one real example from our team, the refinance was meant to be a normal rate and term loan. The plan was to pay a small credit card separately at closing. Somewhere in the process a person in the closing department rolled that balance into the new loan instead of having the borrower write a check. That single change turned the entire refinance into an A6.

This was one file out of thousands for our team. Yet it was still a problem that had to be fixed.

The point is simple. Even good lenders and title companies can make mistakes. If that is true, you can imagine what happens when your loan is handed off to a call center or a national online lender that does not live and work in Texas.

Why Misclassification Matters For Dallas And Texas Homeowners

When your loan is misclassified as A6, it can affect:

• Your ability to add a future HELOC or second lien
• How and when you can access additional equity
• Whether you have to give up a low rate to tap equity later

Example

A homeowner in Dallas refinanced during the low rate environment and landed a three and a half percent interest rate on a five hundred thousand dollar loan. Later they want one hundred thousand dollars for home improvements.

If their existing loan is not A6, they might add a second lien or HELOC and leave the original low rate in place. If that existing loan is A6, Texas law says you cannot stack a second A6 on top of it. To get the one hundred thousand dollars, they may be forced to refinance the entire balance into a new larger loan at a much higher market rate.

That is a very expensive surprise.

How To Check If Your Current Loan Is A Texas A6:

If you are not sure what you have today, here are practical steps you can take.

1. Review your closing package

Look for language that mentions Texas home equity, Section 50 a 6, or a twelve day notice specific to home equity loans.

2. Read your closing disclosure

Check whether cash to borrower shows more than a small tolerance refund and whether any non mortgage debts were paid off through the loan.

3. Call the title company that closed your loan

Ask how your lien was recorded and whether it was classified as a Texas A6 home equity lien.

4. Reach out to a lender who understands Texas

Our team can order a title search, review your paperwork with you, and confirm how your loan is labeled today.

Even if we were not the original lender, we are happy to help you decode what you actually have.

What To Do If Your Loan Was Misclassified

If you discover that your loan is labeled as A6 and you never intended to take a Texas cash out refinance, there may be options.

Go back to the original lender and ask them to review the file.

You want to confirm whether any true cash out occurred or whether non mortgage debts were intentionally included in the payoff.

If there was no real cash out and the classification was simply wrong, there may be a path to reclassify the loan as a rate and term refinance. In situations where the loan followed A6 rules but has now seasoned past the required time frame, a structured rate and term refinance may be able to convert the A6 into a non home equity loan that restores future flexibility.

This is very fact specific. The key is to know the rules, read the paperwork, and work with people who handle Texas A6 and Section 50 refinances every day.

Which Refinance Option Is Right For You?

Choosing between a rate and term refinance vs cash out refinance in Texas is not just about today’s rate. It is about how you want to use your home over the next five to ten years.

A rate and term refinance may make sense if:

• Your main goal is a lower payment or faster payoff
• You want to clean up an old A6 and move back into a standard refinance
• You like the idea of keeping future options open for a HELOC or second lien

A Texas cash out refinance may make sense if:

• You have a large, specific need for cash and want it in one event
• The new blended rate still fits your long term plans
• You understand and accept the A6 rules and limits

Our job is not to push you into one or the other. Our job is to walk through the math, the rules, and your goals so you can make a confident decision.

If you live in Dallas, Fort Worth, or anywhere in Texas and you are not sure what kind of refinance fits your situation, reach out to our team. We will help you see how the Texas A6 rules apply to your home, your equity, and your plans.

Frequently Asked Questions About Rate And Term Refinance vs Cash Out Refinance In Texas

Is a rate and term refinance always better than a cash out refinance in Texas?

No. A rate and term refinance is usually better when your main goal is payment, stability, or cleaning up an old loan. A Texas cash out refinance is usually better when you need a meaningful amount of cash from your home and the numbers still make sense at the higher A6 pricing. The right choice depends on your equity, your rate, and your long term plans.

How often can I do a Texas cash out refinance on my homestead?

Texas generally limits you to one home equity cash out on your homestead in a twelve month period. That is another reason planning matters. If you use your A6 access on a small amount today, you may need to wait before you can do anything else.

Can I refinance my Texas A6 loan into a normal loan?

Often yes. If you wait the required time, do not take any new cash out, and stay within the allowed loan to value limits, a structured rate and term refinance can convert a Texas A6 home equity loan into a non home equity refinance under different constitutional provisions. That can restore flexibility for future second liens in many cases.

What if I used an online lender and don’t understand what they did?

You are not alone. Many of the problem files we see started with non local online lenders that simply labeled everything as A6 to keep things easy on their side. If you are not sure how your refinance was handled, our team can review your closing disclosure and recorded documents with you and explain your options in plain language.

How do I know if I can still get a HELOC after a refinance in Texas?

The answer depends on whether your current loan is an A6, how much equity you have, and how long it has been since your last home equity transaction. The first step is to confirm your current lien type through your paperwork and a title search. From there, we can map out whether a new HELOC, a second lien, or a fresh rate and term refinance is even allowed under Texas rules.