With low interest rates and tax deductibility, borrowing against the value of a home has exploded in popularity.

Why Everyone Loves It
Lenders regard home equity loans as secure because most people's domicile is their biggest asset. For that reason, interest rates are lower than for other loans. Equity is a valuable asset because you can put it to use without having to sell your home. Home equity products usually have a higher interest rate than first mortgages, but compare home equity loan costs to your credit card or department store charge cards.

Drawbacks
The scary part is that if you default on the loan, the lender could foreclose on your home. That's why these loans are statistically most suited to stable, middle-aged borrowers. The average home equity customer is 35 to 49 years old with a household income of $63,000, according to the Consumer Bankers Association. Fifty- to 65-year-olds are the second biggest borrowers of home equity. Most have held the same job and owned their home for about eight years. Less than 2 percent default on their loans.

Example of How A Home Equity Loans Works
Let's say you bought your home for $95,000 and made a 20 percent down payment of $19,000. You then took a first mortgage to pay the remaining $76,000. On the day you closed on your home, you automatically had 20 percent equity. You gain equity as you pay off the principal and your home grows in value. Let's say you've paid $12,000 toward the principal and your property -- valued at $95,000 when you bought it -- is now worth $115,000. Your beginning equity ($19,000), plus the principal you have paid ($12,000) and the increase in your property value ($20,000) gives you $51,000 in equity.