Hello.  I am trying to refinance my home with an adjustable rate mortgage and take some cash out.  Some lenders tell me this loan is illegal by Texas State Law, while others tell me the 7:1ARM is allowed but the 10:1 is not.  I can't find any good info and don't know which information to trust.  Can you shed some light on an ARM Loan in Texas with cash out?

Thanks, Dan

Dan,

It is not illlegal to refinance your homestead (primary residence) using an adjustable rate mortgage. However, the scheduled installment amounts of a variable rate equity loan must be:

(A) substantially equal between each interest rate adjustment;

(B) sufficient to cover at least the amount of interest scheduled to accrue between each payment date and a portion of the principal.

There are no stipulations under Article XVI, Section 50(a)(6) of the Texas Constitution that it must be a 5/1, 7/1 or 10/1 ARM.  The problem is trying to find a lender that will do an ARM on a Texas cash out. Without getting into a lot of the reasons why, suffice it to say that until there is liquidity in the secondary market, you will probably need to locate a portfolio lender to do a Texas Equity loan (cash out) using a ARM.

I hope this helps and if you need further assistance, please don't hesitate to contact me.

Lea Shaw

There are so many aspects of the loan process that consumers don’t understand. Basic things that can affect your interest rate substantially, costing you thousands each year. And they can be resolved with minor solutions, often just by reading blogs. So go ahead, browse the site and educate yourself.

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