Debt Consolidation with Home Equity: A Smart Move for Texas Homeowners

Why Debt Consolidation Matters in Today’s Market

Credit card interest rates have soared in recent years, with average APRs exceeding 20%. Auto loans and personal loans often carry double-digit rates as well. Combined with the rising cost of living, it’s easy to see how homeowners can find themselves feeling overwhelmed. Even responsible borrowers who have never missed a payment can find that the rising cost of essential goods, unexpected medical bills, or car repairs push their monthly budgets to the breaking point.

The Federal Reserve’s efforts to curb inflation through interest rate hikes have had a ripple effect. While mortgage rates remain lower than unsecured debt rates, they have increased compared to a few years ago, making it more difficult for homeowners to decide whether refinancing or a HELOC is the right move. At the same time, those same rate hikes have driven up borrowing costs across credit cards and personal loans, leaving many consumers paying hundreds of dollars more each month than they were just a short time ago.

That’s where debt consolidation comes in. Instead of juggling multiple payments at high rates, you can use your home’s equity to pay off those debts — replacing them with a single loan at a typically lower interest rate. This can simplify your finances, lower your monthly payments, and help you get ahead faster. It can also provide breathing room in your monthly budget, allowing you to build savings, handle emergencies more easily, or simply feel less financial stress. In uncertain economic times, having predictable, manageable payments can be a crucial step toward financial stability.

What Is Debt Consolidation Using Home Equity?

Debt consolidation using home equity means borrowing against the value you’ve built in your home to pay off other debts. Because this loan is secured by your property, it usually comes with a lower interest rate than unsecured debt like credit cards or personal loans.

There are two main ways homeowners in Texas can use home equity for debt consolidation:

• Cash-out refinance: You replace your current mortgage with a new, larger mortgage and receive the difference as cash at closing.
• HELOC: You open a revolving line of credit based on your home equity and borrow as needed, repaying what you use over time.

How a Cash-Out Refinance Works

With a cash-out refinance, you replace your existing mortgage with a new one that’s larger than what you currently owe. The difference between the old loan balance and the new loan amount is paid to you at closing — and you can use that cash to pay off high-interest debt.

Example:

If your home is worth $400,000 and you owe $250,000 on your mortgage, you might refinance up to 80% of your home’s value — or $320,000 (the Texas legal limit). After paying off your old loan, you’d have $70,000 to use for debt consolidation.

Advantages

A cash-out refinance offers several key advantages that can make it a smart choice for Texas homeowners looking to consolidate debt. You’ll have just one loan and one monthly payment, which can greatly simplify your finances. Most cash-out refinances come with a fixed interest rate, providing stability over time. Plus, the interest rate you’ll pay is usually much lower than what you’d see on credit cards or personal loans, helping you save significantly in the long run. It’s also worth noting that closing costs with LendFriend are always more competitive, which can make the process even more cost-effective compared to other lenders.

Considerations

That said, there are considerations to keep in mind. You may lose a low mortgage rate if rates have risen since you first bought your home, which could affect your overall savings. And while closing costs are typically between 2–5% of the loan amount, working with LendFriend helps ensure those costs stay on the lower end of that range. It’s important to weigh these factors carefully when deciding if a cash-out refinance aligns with your financial goals.

How a HELOC Works

A home equity line of credit (HELOC) provides flexible access to your equity. It functions like a credit card — you borrow what you need, when you need it, up to a set limit.

HELOCs are often a good fit for homeowners who want to keep their existing mortgage (especially if they have a low rate) and access funds on a rolling basis.

HELOC Example

Imagine you’re approved for a HELOC with a limit of $100,000 at a variable interest rate of 11%. Rather than borrowing the full amount at once, you decide to draw $30,000 initially to pay off high-interest credit card debt. This means you’re only paying interest on the $30,000 you actually use—not the full credit line—keeping your monthly payment more manageable. If rates stay steady, your interest-only payment on that $30,000 at 11% would be about $275 per month. The remaining $70,000 of your HELOC is still available should you need it, offering flexibility without added cost until you draw those funds.

Advantages

A HELOC offers a number of advantages that can make it an appealing option for homeowners who want to consolidate debt while keeping their existing mortgage intact. One of the biggest benefits is the flexibility to borrow and repay funds over time as needed. This makes it ideal for people who want access to credit without having to take a large lump sum upfront. Because you’re not replacing your current mortgage, you maintain the benefit of your original interest rate, which is especially valuable if rates have risen since you purchased your home. Additionally, HELOCs often come with lower upfront costs than a full refinance, which can make them easier on your budget at the outset.

Considerations

There are also important considerations to keep in mind. Most HELOCs come with variable interest rates, which means your payment could increase over time if rates rise. This can add unpredictability to your monthly expenses. You’ll also be managing a second payment in addition to your original mortgage, which requires careful budgeting to ensure you can comfortably meet both obligations. Understanding these trade-offs is key to making an informed decision, and working with an experienced mortgage broker like LendFriend can help you evaluate whether a HELOC is the right fit for your financial goals.

Texas Homeowners: What You Need to Know

Texas has unique rules that shape how you can access your home equity:

• 80% loan-to-value cap: You can borrow up to 80% of your home’s fair market value, minus what you still owe.
• 12-month waiting period: After a cash-out refinance, you must wait at least 12 months before doing another.
• Fee limits: Lender fees are capped at 2% of the loan amount (excluding title, appraisal, and certain other costs).
• Loan type restrictions: Only conventional cash-out refinances are allowed — FHA and VA cash-out options aren’t permitted for Texas homeowners.

Because of these restrictions, it’s especially important for Texas homeowners to plan carefully. Working with a mortgage broker like LendFriend ensures your loan is structured properly and complies with all state rules.

Cash-Out Refinance vs. HELOC: How to Choose

Many homeowners prefer a cash-out refinance for its simplicity, as it consolidates everything into one mortgage and one lender, making payments easier to manage. This option can be ideal when consolidating a large amount of debt at once. On the other hand, a HELOC can be a better fit for homeowners who have an ultra-low mortgage rate they don’t want to replace, as it allows them to keep their existing loan while accessing additional funds as needed.

When deciding between a cash-out refinance and a HELOC, consider:

• Your current mortgage rate: If you have a low rate, you may not want to replace it with a higher-rate loan.
• How much debt you’re consolidating: A large lump sum may be better suited to a cash-out refinance.
• Your need for flexibility: If you want ongoing access to funds, a HELOC might be the better fit.

A mortgage broker can help you weigh the pros and cons of each option based on your situation.

Example: The Power of Consolidation

Imagine you owe:

• $250,000 on your mortgage at 3.5%
• $30,000 in credit card debt at 21%
• $15,000 in auto loan debt at 10%

Your combined monthly payments might look like:

• Mortgage: $1,123
• Credit cards: $700
• Auto loan: $350
• Total: $2,173

With a cash-out refinance at 6.5% for $295,000:

• New mortgage payment: ~$1,866
• Credit cards: $0
• Auto loan: $0
• New total: $1,866

That’s over $300/month in savings — plus significant interest savings over time.

Risks and Considerations

It’s important to remember that you’re converting unsecured debt (like credit cards) into secured debt tied to your home. If you fall behind on payments, you could risk foreclosure. Additionally, extending your loan term could increase the total interest you pay over time.

This is why planning — and working with a knowledgeable mortgage broker — is key.

How a Mortgage Broker Like LendFriend Helps

When it comes to debt consolidation, no two homeowners are alike. That’s why working with a mortgage broker like LendFriend can make all the difference.

Rather than offering just one set of loan options, brokers compare multiple lenders and loan types to find the best fit for your needs. LendFriend also understands Texas’s unique lending laws and can guide you through the process to ensure everything is handled correctly — from paperwork to lender selection.

Final Thoughts

Understanding your options is critical in today’s unpredictable world. Evaluating whether a cash-out refinance, HELOC, or another solution fits your financial goals can help protect your future. Taking time to weigh these choices carefully—and working with a trusted mortgage broker—can ensure you make the best decision for your unique situation.

Debt consolidation using home equity can be a smart, strategic way for Texas homeowners to lower their monthly payments, reduce interest, and simplify their finances. Whether you choose a cash-out refinance or a HELOC, the key is choosing the right solution for your situation — and that’s where partnering with an experienced mortgage broker comes in.

If you want to discuss whether a refinance or a HELOC is right for you, give us a call at 512.881.5099 or get in touch with me by completing this quick form, and I'll be in touch as soon as possible.