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Home Equity Loan Restrictions Lifted in Texas with Low Voter Turnout

Texas voters amended the state Constitution in the last election (November 2017), to make home equity loans more accessible in the Lone Star state.

In November 2017, seven new Constitutional amendments became law, despite few Texans going to the polls. According to the Texas Secretary of State, we have 15,099,137 registered voters, which accounts for 77% of Texas’s voting age population; in November, 877,603 showed up to vote. Yep, that amounts to 5.81% of registered voters and only 4.5% of Texans old enough to vote.

To illustrate, let’s say you have 25 people working in your office here in Texas – all voting age, and only 23 are registered to vote. Extending the proportional analogy, that would mean only one person in your office voted. And that one person helped change the Texas Constitution.

One of the amendments to the Texas Constitution involved home equity loans, both original loans, and refinancing of existing home equity loans in Texas. Despite low voter turnout, this amendment is good for homeowners because it eases restrictions on home equity loans.

Your equity is determined by the difference between what your home could sell for and what you owe on your mortgage. A home equity loan allows the borrower/homeowner to use the equity in her home as collateral on the loan, and the loan amount is determined by the value of the property.  Until I wrote this I was not familiar with the term “cash out” loan, but you may have heard this type of lingo used for a home equity loan. Often, this type of loan is used to finance major expenses like home repair or improvement, or unanticipated expenses that happen in life.

The downside of this type of loan is a failure to repay means the lender can force you to sell your home to recover the funds you owe. The loan itself, of course, reduces your equity and creates a lien obligation.

Here are the new provisions of Texas law:

  1. Expanding the list of lenders authorized to make Texas home equity loans;
  2. Allowing Texas home equity loans, under certain conditions, to be refinanced as a non-home equity loan;
  3. Eliminating ban on home equity loans on a homestead with agricultural tax exemption;
  4. Reduction of 3% fee cap to 2% fee cap with certain exclusions, and some fees such as appraisal and title insurance no longer count under the 2% cap;
  5. Amending 12-day notice disclosure;
  6. Repeal of the restriction on making debits or advances on a home equity line of credit if the principal amount outstanding exceeds 50% of the fair market value of the homestead. A home equity line of credit (HELOC) is a bit different in that it is a line of credit with an adjustable interest rate, but a home equity loan is a lump-sum amount with fixed interest.

Also, federal law gives you three days to reconsider a signed credit agreement and cancel the deal without penalty. More importantly, as part of the 2018 Tax Reform, interest on home equity loans will no longer be deductible on your income taxes. Still, if you already have a home equity loan or line of credit, this is the last year you can write off the interest. So, the one person that voted in November 2017 in Texas effected change to the Texas Constitution and it was the other 23 registered voters in 2016 that influenced the federal tax reform, when Texas turnout was nearly 60% or registered votes or almost half of the voting age population.

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