More and more homeowners are electing to refinance their mortgages with cash back for debt consolidation. There are a number of advantages to paying off your bills when refinancing; however, taking out a new home loan to consolidate debt is not without risks. Here are several tips to help you decide if refinancing to pay off your bills is the right choice for you.

When you refinance your mortgage to consolidate bills you are borrowing against the equity in your home with a new mortgage loan. You’ll use the new loan to pay off your old mortgage and the difference between the balance you owe and the amount you borrow will be paid to you at closing. The equity you have in your home is the difference between the amount you owe on the existing mortgage and the appraised value of your home. Many homeowners value equity as their nest egg and borrowing against it reduces your ownership of your home. There are however a number of favorable advantages to refinancing with cash back for debt consolidation.

The main reason is that you gain a tax deduction for your existing debt. The interest you pay on your primary mortgage loan is fully deductible on your Federal income tax. By paying off your credit cards, car loans, and other personal loans with your home equity you’ll reduce your monthly bills to one payment and lower your tax liability at the end of the year.

Before you refinance your mortgage and withdraw your equity it is important to understand that mortgage refinancing is not without risk. Not only will you be giving up ownership in your home by withdrawing your equity, you will be starting the amortization of your loan from the beginning. Amortization is the process of paying the interest and loan principal. Because mortgage loans are front-loaded with interest, in the early years of your loan most of your payment is applied to mortgage interest. This means that you’ll build the equity you borrowed at an even slower rate than your existing loan.

You can learn more about refinancing your mortgage while avoiding costly mistakes with a free mortgage video tutorial.