Most lenders require that a homeowner have at least 10 percent equity in his or her residence before granting a home-equity loan or a home-equity line of credit.

Home-equity loans generally come with a fixed interest rate, fixed monthly payments and a specific life span, usually five to 15 years. They operate much like a fixed-rate, first-mortgage loan.

But the interest rate on home-equity loans is higher than on first mortgages. That is because lenders assume greater risk with second loans: If the borrower defaults, the lender of the first mortgage gets money before the second lender does. Because of this, borrowers usually receive better interest rates on home-equity loans if they have better credit and have built up more equity in their homes.

This week, the national average interest rate on a home-equity loan was 7.99 percent, according to Bankrate.com, compared with less than 6 percent for most first-mortgage loans.

These products, often referred to as HELOCs, are open-ended loans paid as revolving debt. Unlike credit cards, though, HELOCs use homeowners' residences as collateral. As with home-equity loans, the amount of money homeowners can borrow depends on the amount of equity they have built up.

Interest rates on home-equity loans are generally linked directly to the prime rate and change with that rate. This week, the average rate on HELOCs was 7.31 percent, according to Bankrate.com. But the Federal Reserve's sharp rate cut this week, three-quarters of a percentage point, will translate into lower rates on these loans.

As with credit cards, HELOCs allow homeowners to take out as much money as they want, when they want, up to the limit of their line of credit. Also as with credit cards, homeowners don't pay anything on HELOCs until they generate debt, unless -- and this is a big "unless" -- their HELOC comes with a non-usage penalty. Then homeowners may face penalties for not borrowing quickly enough.

Unlike credit card interest, interest on either a HELOC or a home-equity loan may be tax-deductible. (There are limits to deductibility based on size of the debt, what the money is used for and the home's market value.)

Once homeowners borrow on their line of credit, they don't have to pay off the debt in full immediately. As if they were borrowing with credit cards, homeowners can instead make a minimum monthly payment that varies depending on the lender and the amount of money borrowed.

If homeowners end the month with a balance of $4,000, for example, they may have to pay a minimum of $120, depending on the payment schedule set by their bank or lender.

Because payment schedules and terms can vary widely, it's up to homeowners to do their research before taking out a HELOC. Because of this variety and because the credit liens don't come with set monthly payments and terms, some caution homeowners against using a HELOC if they're not absolutely certain they can use the product wisely. Just like credit cards, they can be problematic for some.

Homeowners who have already run up their credit card bills are more likely to run up large monthly payments on their HELOCs. But there is a difference: If consumers miss their credit card payments, they face late charges, hits to their credit scores and the possibility of falling into bankruptcy. If they consistently miss payments on their HELOCs, they risk losing their homes.

And that, financial pros say, is the real danger of using a home-equity line of credit.

Rob Blake, a mortgage loan officer in Colorado, president of Integrity First Mortgage and founder of the Mortgage Insider Web site ( http://www.themortgageinsider.net), said that most consumers aren't savvy enough about debt to be entrusted with a home-equity line of credit.

Blake said he especially hates to see consumers rely on either home-equity loans or HELOCs to pay off credit card debt.

"The studies have all shown and proven that within two years of paying off their credit card debt, the average American is back in debt equally or more," Blake said. "It's ridiculous. Do not pay off your credit card debt with a HELOC. Most people will be back in the same situation with their credit card debt within two years."

But for those consumers who can manage their debt, when does it make sense to take out a home-equity loan, and when is it smarter to rely on a HELOC?

That depends largely on how homeowners want to use the money and how comfortable they are with fluctuating monthly payments, financial professionals say.

Homeowners who plan to use a loan for one big-ticket purchase, such as a home renovation, and then pay off that loan in a specific time go with a home-equity loan, said Deb Levy, vice president in the D.C. office of Bank of America Mortgage. This loan, with its fixed payment schedule and payoff length, appeals to those seeking a stable source of short-term income, she said.

Those homeowners who want the ability to borrow money on their own terms, and only when they need it, would be happier with a HELOC, Levy said.

Another difference between the two products that may affect a consumer's decision is that home-equity loans come with a fixed interest rate for the life of the loan, whereas HELOCs do not.

"There is a certain amount of comfort with a home-equity loan," said Matthew Rosov, a loan officer with Fairfax-based Premier Mortgage.

"Borrowers know exactly what their monthly payment is going to be. The interest rate doesn't fluctuate. Some consumers are more comfortable with that. It's all a matter of comfort and what it is that a consumer wants."

Other borrowers prefer the flexibility that comes with a HELOC, Rosov said. People can control how much they pay each month by borrowing only what they need then, he said.

"Normally, when I explain the differences between the two products, most consumers go with the HELOC," Rosov said. "With the variety the HELOCs have, they usually end up being the better tool for most consumers."

Stevens, from Long & Foster, agreed: Most borrowers, once they understand the differences, prefer the credit line.

"People want the loan available for its flexibility," Stevens said. "If they need quick cash for any reason, a HELOC is a good option. Maybe after they move, they need money to remodel their basement or buy a washing machine. Many times, people get a HELOC and never draw down on the balance whatsoever. It's just there for flexibility. That's very typical. I even did that on my home."