Home equity lets Texas homeowners borrow against the value of their house via fixed home equity loans or revolving HELOCs. Both typically offer lower rates than unsecured credit but put your home at risk. Under current federal tax rules, interest is only deductible when funds are used to buy, build, or substantially improve the secured home and are subject to a $750,000 combined mortgage limit. Texas has state-specific limits and disclosure rules - consult a Texas-licensed lender or attorney before borrowing.

What is home equity?

Home equity is the difference between your home's current market value and the outstanding balance on mortgages or liens against it. You can use that equity as collateral to borrow - either as a fixed, one-time home equity loan or a revolving home equity line of credit (HELOC).

Home equity loan vs HELOC

Home equity loan

A home equity loan is a lump-sum loan secured by your house. It typically carries a fixed interest rate and fixed monthly payments, so you know your cost and schedule up front. Lenders commonly call this a second mortgage.

HELOC

A HELOC works more like a credit card secured by your home. You get a credit line you can draw from during a "draw period" and pay interest (usually variable). After the draw period ends, you enter the repayment period and must repay principal and interest. HELOC rates are often variable and tied to an index such as the prime rate.

Why homeowners use equity loans

Home equity loans and HELOCs are commonly used to:

  • Consolidate higher-interest debt (credit cards, personal loans)
  • Fund home renovations that can increase property value
  • Pay tuition or medical bills
  • Bridge cash flow shortfalls
Because the loan is secured by your home, interest rates are generally lower than those on unsecured credit, but your house is at risk if you default.

Taxes and costs (current federal rules)

Under current federal tax law, interest on home equity loans or HELOCs is deductible only when the loan proceeds are used to buy, build, or substantially improve the home that secures the loan. The total of your qualifying mortgage and home-equity borrowing is also subject to the federal limit of $750,000 for most filers ($375,000 if married filing separately). Consult a tax professional for your situation.

Terms, fees, and risks

Loan terms vary widely. Home equity loans often come with fixed terms (commonly 5-30 years). HELOCs typically have a draw period (often 5-10 years) followed by a repayment period (often 10-20 years), though exact terms differ by lender. Expect closing costs, appraisal fees, and possible annual or inactivity fees on HELOCs.

Key risks:

  • Your home is collateral - missed payments can lead to foreclosure.
  • Variable HELOC rates can rise, increasing your payment.
  • Taking large equity draws reduces your ownership stake and can complicate future refinances or sales.

Texas specifics and consumer protections

Texas has unique home-equity rules and borrower protections that differ from other states; these include limits on how much you can borrow and specific notice and closing requirements for home-equity loans in many cases. Always review Texas statutes or speak with a Texas-licensed lender or attorney about state-specific limits and required disclosures before signing.

Practical steps

  • Compare APRs, fees, and loan terms across multiple lenders.
  • Confirm whether interest would be tax-deductible for your intended use.
  • Consider alternatives (cash reserves, personal loans, refinancing) and the long-term impact on your home equity.
If you plan to use your Texas home as collateral, get clear, written estimates and consult a mortgage professional or attorney familiar with Texas law.
  1. Verify the exact Texas statutory limit on combined liens/maximum borrowable percentage for home equity loans and HELOCs.
  2. Confirm specific Texas borrower protections and procedural requirements (notice periods, closing requirements, and any mandatory disclosures) for home-equity transactions.

FAQs about Texas Home Equity Loan

How much can I borrow against my Texas home?
Texas imposes state-specific limits and lender rules on home equity borrowing; the maximum combined lien amount can vary by statute and situation, so check current Texas law or ask a Texas-licensed lender for the precise limit.
Is interest on a home equity loan tax deductible?
Under current federal rules, interest is deductible only if the loan proceeds are used to buy, build, or substantially improve the home that secures the loan, and the total qualifying mortgage balance must fall within the federal cap ($750,000 for most filers). Consult a tax advisor to confirm for your circumstances.
What is the main difference between a home equity loan and a HELOC?
A home equity loan is a fixed, lump-sum loan with fixed payments. A HELOC is a revolving credit line with a draw period and typically a variable interest rate; you borrow as needed during the draw period and then repay principal and interest later.
Can I lose my home if I default on a home equity loan or HELOC?
Yes. Both types of borrowing are secured by your home, so failure to make payments can lead to foreclosure. Consider payment capacity and interest-rate risk, especially for variable-rate HELOCs.
Should I shop lenders or negotiate terms?
Yes. Compare APRs, fees, draw and repayment periods, and any prepayment penalties. Request written estimates and factor in closing costs and appraisal fees before deciding.