A: Many consumers eager to consolidate their debts or finance a major purchase are using home equity loans. Bankers are eager to offer you loans that take advantage of the tax laws. Interest deductions on most loans are no longer available, but interest on loans secured by a first or second home remains deductible.

Here's how a home equity loan works: The amount of equity in your home is the market value of the house minus any whatever you owe on the mortgage. If you could sell your house for $80,000 and you still owe $30,000, your equity is $50,000. Your banker will allow you to use that $50,000 as collateral for a line of credit -- an equity loan.

Lenders will not let you borrow the entire amount of equity. They protect themselves with a certain margin of safety just in case they have to foreclose on your house and property prices have dropped. However, most banks will allow you to borrow up to 80 percent of your equity.

Technically, home equity loans are second mortgages. With a second mortgage, a homeowner receives a lump-sum loan. He repays the principal and interest in equal monthly installments over a set time period, similar to car loans.

In the case of a home equity loan, you apply for a line of credit much like the one on a credit card. When you need to borrow money you just simply write a check. You are charged interest only on the amount you borrow.

The way you repay equity loans varies from lender to lender. Some require you to pay only interest each month, with principal due at the end. Others have you pay something on the principal each month.

While interest rates on unsecured loans are hovering in the mid teens and most bank credit-card rates are still stuck near 20 percent, home equity loans are as low as 8.5 percent. One reason for the lower rate is that a equity loan is secured by your house. This reduces the lenders risk.

Another reason is that home equity loans carry variable interest rates, allowing lenders to raise the rate if interest rates rise. Finally, lenders don't have to factor in points when they calculate the annual percentage rate. This makes the rates appear lower.

There are some things to be concerned about if you are considering a home-equity loan. First, large closing costs out of proportion to the amount borrowed. Also, variable interest rates with no limit on how high the rate can go. Watch out for advertised low initial rates that quickly vanish.

With a home equity loan, you run the risk of losing your house if you don't keep your payments up. Never borrow money without knowing the interest rate. And remember, most home-equity loans have uncapped variable interest rates.

If you must use your home as collateral for a loan, a fixed-rate second mortgage would be a better choice. If you still choose a home-equity loan know all the facts. Don't grab for the carrot before taking a good look at the stick.