Your Mortgage : Using Your Home Equity to Pay Off Debts : Credit: Home-equity loans are tax-deductible. But financial advisers warn that imprudent spending can result in loss of the house.

Tax season is here, and so is the annual blitz of advertisements for home-equity loans.

It’s true that taking out a home-equity loan can let you unleash thousands of dollars in built-up equity to spend any way you wish.

It’s also true that the loans can save some homeowners hundreds or even thousands of dollars in taxes. As a general rule, you can borrow up to $100,000 based on your equity and still write off all your interest payments.

Since deductions for non-mortgage debt are being phased out, you can save a lot of money by taking out a home-equity loan and using the proceeds to pay off your other debt, such as auto loans and credit card bills. Since the new loan will be linked to your mortgage, you’ll still be able to write off most or all of your finance charges.

But despite these benefits, financial planners say home-equity loans aren’t for everyone. They worry that borrowers who lack spending discipline will get in over their heads, and that too many people don’t realize that they may lose their homes through foreclosure if they can’t pay the money back.

“Taking out a home-equity loan can be a good financial move, but it can also be a dangerous one,” said Morrie W. Reiff, a financial planner at Planned Asset Management Inc. in Encino. “Don’t do it if you’re just going to squander the money or if you can’t control your spending.”

Reiff and many other financial planners say you shouldn’t fall for lenders’ slick advertising campaigns that tempt you to tap your equity to take a “dream vacation,” buy a boat or make some other extravagant purchase.

Instead, they advise, only take out a home-equity loan to meet more important needs. Those include paying tuition, starting your own business, meeting major medical bills or remodeling your house.

They can also make sense if you want to use the money to pay off high-interest credit cards and other types of debt, “as long as the cost of setting up the loan doesn’t offset your tax savings and you won’t run the credit card balances back up again,” said Lawrence A. Krause, president of the San Francisco financial planning firm that bears his name.

If you can justify tapping your equity, you’ll have two basic borrowing choices: a conventional second mortgage or a home-equity credit line. Each type has its advantages and drawbacks.

A conventional second mortgage is the easiest to understand. You get the money in one lump sum and usually pay it back at a fixed interest rate in fixed monthly installments. The typical repayment term is 15 years.

A home-equity credit line--sometimes called a home-equity account, or simply a HECL--is the most heavily promoted type of home-equity loan. It’s basically a revolving line of credit, much like a Visa or Sears card: You get a pre-established line of credit based on your equity and access the money with special checks or a credit card.

Most credit lines have adjustable rates, so monthly payments vary. It’s important to remember, though, that the credit lines are just “second mortgages in drag”: The lender can foreclose if you can’t pay the money back.

Deciding which type of loan is best for you depends on a variety of factors.

If you don’t like the uncertainty of adjustable-rate loans, you’ll probably want to stick with a conventional second mortgage. You’ll know just how much you’ll be expected to pay each month, and you won’t have to worry about your interest rate soaring if inflation takes off.

Another advantage to conventional seconds is that they’re usually fully amortized--that is, they’re completely paid off when the loan term is up. As a result, you don’t have to worry about eventually facing a large balloon payment.

Many credit lines, on the other hand, aren’t fully amortized: some require that you make one large balloon payment when the term expires. If you can’t come up with the cash, you may have to sell your home or get a new loan to meet your obligations to the lender.

Although a typical credit line starts with a rate far below those offered on conventional seconds, its rate can often skyrocket after subsequent adjustments.

Still, credit lines have some distinct advantages over conventional second mortgages. First, they’re “user friendly”: Tapping the money is as easy as writing a check or using the special credit card.

Credit lines can also be a good choice if you’re going to need lots of cash, but you don’t need it all right away, planner Krause said.

For example, if your child is starting college and you’ll have to make fat tuition payments over each of the next four years, taking out a credit line probably makes more sense than opting for a conventional second because you’ll be able to draw the money down as you need it.

If you instead chose a conventional second, you would start paying interest on the money right away, even though you wouldn’t need most of the cash for several years.

If you’re thinking of taking out a home-equity loan, it’s a good idea to consult an accountant or financial planner to see what they think of your plans. They might also do a better job of explaining the tax ramifications than your loan officer will.

Also, don’t overlook the benefits of simply refinancing your current home loan. It might be the cheapest and easiest way to tap your equity.

Finally, do lots of comparison shopping among financial institutions if you decide that a home-equity loan makes good sense. “Lenders are in a fierce marketing war right now, and some are offering really good deals,” said financial planner Reiff.