Once you have built up equity in your home, you have the privilege of applying for a home equity line of credit, which allows you to borrow against that equity inexpensively and conveniently.

In effect, a home equity loan is a second mortgage on your home. You usually get a line of credit up to 70 or 80 percent of the appraised value of your home, minus whatever you still owe on your first mortgage.

Like other mortgages, the home equity loan requires you to go through an elaborate process to quality for and open a line of credit. (It is easy to get started though, with services like E-Loan.)

Home equity loans have become popular because they are flexible and offer attractive rates and tax deductions. However, you should be careful about how you spend the proceeds from your home equity loan. It is best if you use the money for major capital expenditures on which you might earn a return instead of on impulse items.

The most dangerous type of home equity loan is the kind that taps even more than the existing equity itself. Sometimes called 125 percent loans, these negative equity type loans result in your owing more than your house is worth, spelling disaster if your financial picture forces you into having to sell your home.