The lure of low interest rates and a potential tax deduction has enticed many a consumer to secure a home equity loan. In fact, at the beginning of the 1990s, home equity loans totaled $34 million; today that number is closer to $500 billion.

While a tax deduction can be beneficial, there are hidden charges, costs and hassles that pop up occasionally with a home equity loan or a home equity line of credit (HELOC). For consumers who took out a home equity line, a careful review of this year's activity could help answer questions about how to tackle 2001.

"This is part of going through the process of debt management," says Randolph J. Shine, a certified financial planner in Deerfield Beach, Fla. "Before you even get a home equity loan or line of credit, you have to understand the costs of meeting that service. It's a debt just like any other debt."

Recycle that debt

Debt consolidation remains one of the biggest uses for home equity lines, experts say. By taking a credit card balance at 18 percent interest and moving it to a home equity line with 8 percent or 9 percent interest, people may save thousands of dollars. Home equity line interest is usually tax-deductible too, magnifying the savings.

But many people who open lines of credit to pay off old credit card debts build up balances again. They may find this to be a good time to do two things: Move that new debt over to the home equity line and cut up all but one piece of plastic.

"It certainly is better to have the equity line used to pay your debt," says Nancy Langdon Jones, a certified financial planner in Upland, Calif. "It's a step up from credit card debt."

Paying for the privilege

There's no such thing as a free ride, and that adage certainly holds true with home equity lines of credit. Indeed, all kinds of charges can show up on the statements.

Just as many credit cards charge annual fees, many lenders charge up to $100 just for the privilege of having a home equity line of credit open.

Inactivity fees are another problem. Since lenders want to make money, they view customers who don't rack up debt like products that don't sell: They cost money and don't generate any profit.

As a result, companies that might not charge an annual fee may levy a surcharge on lines of credit that don't show enough use during a given time period.

Cheap access

Given these costs, borrowers need to evaluate whether keeping an unused line of credit open makes sense. Financial experts say it probably does for people whose primary cushion in times of trouble is their home equity. People with substantial savings, on the other hand, might want to go ahead and close out their lines, as long as doing so won't incur penalties.

To decide, think of what would happen during a period of job layoffs or other financial turmoil. Homeowners with lines of credit already open don't need to get laughed out of the lender's office trying to get a new loan when they have no source of income, Jones notes. Access to money is a big benefit for just $75 a year.

Some borrowers may want to go ahead and close their lines, but they should be sure they won't be subject to closing cost reimbursement demands. While many lenders waive underwriting costs associated with opening lines of credit, they only do so in anticipation of future profit. In most cases, that means lenders ask for their money back if their lines are closed before a certain amount of time -- perhaps three years -- passes.

So be sure that avoiding $75 in annual fees for keeping a line open doesn't cost $800 in retroactive closing costs.

-- Updated: Dec. 13, 2000