If you're like many Bay Area residents, you're not exactly a full-fledged homeowner. This means that until you pay off your mortgage, you simply hold a certain amount of equity in the property. This equity is the difference between the market value of your home and the outstanding balance of your mortgage. As the value of the property appreciates and you chip away at mortgage debt, you gradually accrue a greater share of equity.

A home equity loan allows you to borrow against your own portion of ownership. You may choose to draw on this resource to finance expensive renovation projects or pay off higher-interest debt — a sensible option as interest paid on home equity loans is usually tax-deductible. In addition, historically low interest rates and soaring property values have recently combined to make home equity loans an even more attractive bargain. But however tempting this sort of loan may be, do not gamble home equity on "improvements" that are unnecessary or will not pay for themselves in increased market value when you sell your property. Home equity loans are not without risk, particularly for people already burdened with substantial mortgages.

Generally, lenders offer two kinds of home equity options. The first is a standard home equity loan, also known as a "second mortgage," which allows you to borrow a lump sum to be paid back over a fixed period. Your second choice is a home equity line of credit, which makes a certain amount of money available to you to draw on as needed, typically through use of a special credit card or checks. You pay interest on only the amount of funds you actually borrow. Before committing to any type of home equity loan or credit arrangement, be sure to do some comparison shopping — and always read the terms of any agreement very carefully. 

See REALTOR® Magazine Online for a reprint of Remodeling magazine's yearly "Cost vs. Value Report" to attain at least a rough estimation of whether your home improvement plans are an indulgence or a true investment.