Refinancing, what it is, how it works, and when it actually makes sense

Thinking about refinancing your mortgage but not sure if it’s the right move? You’re not alone. Whether you’re trying to lower your monthly payment, tap into equity, or pay off your loan faster, refinancing can be a powerful tool—when done for the right reasons.

But not all refinances are created equal. Let’s walk through the types of refinancing, what you need to know (especially in Texas), and how I help my clients understand the full financial picture before they sign anything.

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What Is a Mortgage Refinance?

In simple terms, refinancing replaces your current mortgage with a new loan—often with a different interest rate, loan term, or loan type. That new loan pays off the old one, and you start making payments on the new terms.

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Why Do People Refinance?

There are several reasons homeowners choose to refinance:

• Lower your interest rate and monthly payment
• Switch loan types (e.g., from FHA to Conventional)
• Change your term (e.g., from 30 years to 15)
• Access equity for cash-out purposes
• Remove mortgage insurance
• Consolidate debt

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Types of Refinancing

Here’s a quick rundown of the most common refinance options:

1. Rate-and-Term Refinance

This is the most straightforward. You’re refinancing to change your interest rate, your loan term, or both. You don’t receive any cash back—just a better loan structure.

Best for:

• Lowering monthly payments
• Paying off your loan faster
• Removing FHA or conventional mortgage insurance

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2. Cash-Out Refinance

This lets you borrow more than what you owe and take the difference out as cash. It’s a popular way to fund home improvements, pay off debt, or cover large expenses.

Example:
You owe $250,000 on your home and it’s worth $400,000. A cash-out refinance might allow you to borrow $320,000—paying off your old loan and giving you $70,000 (minus closing costs) in cash.

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Understanding Texas Cash-Out Refinancing (Texas 50(a)(6))

If you live in Texas, cash-out refinances work a little differently—thanks to state law.

Here’s what you need to know:

• The loan is governed by Article XVI, Section 50(a)(6) of the Texas Constitution
• You can only access 80% of your home’s value (combined total of all loans)
• 12-day waiting period: After receiving required disclosures, you must wait 12 days before you can close
• You can only do one 50(a)(6) loan at a time—you can’t layer HELOCs or second liens
• Once your property is tagged as a “Texas cash-out,” any future refinance is also considered a 50(a)(6)—even if you don’t take cash out again—unless certain rules are met

Important: Texas law is designed to protect homeowners, but it can add some complexity to the process. That’s why it’s essential to work with someone who knows how to structure these loans correctly. (Hi—that’s me.)

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How I Help You Decide: The Total Cost Analysis (TCA)

Every refinance has pros and cons. Sure, your new rate might be lower—but what are the upfront costs? How long will it take to break even? And does it truly improve your long-term financial picture?

To answer those questions clearly, I create a custom Total Cost Analysis (TCA) for every client using Mortgage Coach. This is a powerful software that allows me to show you and explain to you with a custom video just for you:

• Side-by-side comparisons of different loan options
• Your break-even point (when the refinance pays for itself)
• Total cost over 5, 10, 15 years—and over the full term
• Monthly savings vs. total savings
• What happens if you apply your savings toward principal each month

No guessing, no gimmicks—just real numbers.

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When Does Refinancing Not Make Sense?

Sometimes people get excited about a slightly lower interest rate—but don’t realize it would take years to break even on closing costs.

Here are a few situations where refinancing may not be the best move:

• You plan to move in the next 2–3 years
• Your new rate doesn’t offer significant savings
• You’ve already refinanced recently and haven’t recouped those costs yet
• You’d be extending your loan and paying more interest over time, I would recommend this only if your circumstances necessitate a lower payment.

That’s why the Total Cost Analysis is so important—it shows whether a refinance actually helps you or not.

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Ready to See If It Makes Sense for You?

Whether you’re curious about lowering your rate, taking cash out, or just want to run the numbers, I’m here to walk you through it.

Start your refinance analysis here:
Or reach out directly for a custom Total Cost Analysis tailored to your goals.

Let’s make sure it’s not just a good rate—but a smart move.

What About a HELOC Instead of a Refinance?

Sometimes a full refinance isn’t your best option—especially if you’ve got a great first mortgage rate and just want to tap into your equity for a project, emergency fund, or debt payoff strategy.

That’s where a HELOC (Home Equity Line of Credit) comes in.

How a HELOC Works:

• It’s a second mortgage that gives you access to your home’s equity
• You can borrow from it as needed—like a credit card secured by your house
• You only pay interest on what you use, not the full limit
• It doesn’t change your current first mortgage or its rate

When a HELOC Makes Sense:

• You want to keep your low interest rate on your first mortgage
• You only need a smaller loan amount or flexible access to funds
• You’re paying off high-interest credit cards or personal loans
• You don’t want to pay closing costs associated with a full refinance

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Want to See What HELOC Rates You Qualify For?

You can apply online in just a few minutes using the secure AXEN Mortgage HELOC portal: Check HELOC options here

Important tips before applying:

• Only one person should apply (even if you’re married)—use the borrower with the highest credit score, not necessarily the highest income
• Use household income, not just your own, when filling out the application
• If you’re planning to pay off any debt with the HELOC, make sure you list those debts in the application—it can help lower your debt-to-income ratio and improve approval odds

Once you apply, I’ll follow up and help you review your options side by side with any refinance opportunities. We’ll find the most strategic solution for your goals.