BEND, Ore. (CNN/Money) – Americans have home equity to burn, or so you would think.

In just one year, outstanding balances on home equity loans and lines of credit have increased 35 percent to $346 billion, according to Federal Deposit Insurance Corporation statistics for the fourth quarter of 2003.

In fact, total home equity debt now trumps total credit card debt.

"The popularity of these loans has exploded," said William McCracken, CEO of Synergistics Research, adding that the percentage of homeowners with home equity lines of credit and loans – now nearly 20 percent – is double what it was in the 1990s.

While home equity loans pay out one lump sum and have fixed repayment schedules, home equity lines of credit, which are far more common, allow you to borrow against your home equity at any time, for any purpose.

"Cash out" refinancing is another way to tap home equity – you simply refinance for more than you owe on your mortgage and pocket the difference. During the fourth quarter of 2003, 45 percent of all Freddie Mac-owned loans that were refinanced resulted in mortgage balances that were at least 5 percent more than the previous balance.

Top uses of home equity Homeowners used their home equity lines of credit for more than one purpose, which is why the percentages add up to more than 100 percent. Purpose    Home improvement  57 percent  Debt consolidation  39 percent  Auto purchase  30 percent  Furniture or appliances  19 percent  Education  15 percent   Source:  Synergistics Research 2003 survey

"We were all brought up to think that the biggest goal in life was to pay off your mortgage," said Peter DiMartino, director of asset-backed securities for RBS Greenwich Capital Markets. "Now a lot of folks are questioning whether they really need to hold onto that much home equity."

Indeed, "house rich" homeowners no longer have to wait until they actually sell their homes to realize rising home values. Cashing in on home equity is as easy as handing over a credit card.

If you must borrow money, leveraging your home equity might make a lot of sense.

Rates for home equity lines of credit, which are almost always variable, were recently 4.65 percent, according to HSH Associates. Rates for home equity loans, which are typically fixed, were recently 6.79 percent.

In most cases, you can deduct any interest you pay regardless of how you use the money. (If you're subject to the alternative minimum tax you can only deduct interest related to the home.)

But while there's no question that home equity loans and lines are a good deal right now, there's also no question that they demand quite a bit of self-restraint.

This is particularly true of home equity lines of credit, which you can draw on by writing a check or handing over a credit card linked to the account. There is no set repayment schedule, and minimum payments are typically no more than the monthly interest on the loan.

The average line of credit available in 2003 was about $69,500 according to the Consumer Bankers Association, up from $55,000 the previous year. On average, homeowners tapped their line of credit 3.7 times last year, taking out $13,142 each time.

"It comes down to what people are doing with their home equity," said Douglas Duncan, chief economist for the Mortgage Bankers Association. The majority of borrowers, he said, are using the money to make home improvements – an investment that could result in a net increase in home equity.

The second most common use of home equity is to consolidate debt, namely credit card debt. Unfortunately, this is often just a temporary fix, said Chris Viale, general manager of Cambridge Credit Counseling.

"People often turn around and charge up their credit cards again," said Viale. Within two years, their balances are back where they started, and they have home equity debt to boot.

Because rates on home equity lines of credit are usually variable, there is also the risk that rising rates will make it that much harder to pay back the loan. Meanwhile, if a home's market value declines, you could actually owe more on the house than it is worth.

Viale's advice: "Don't take any credit you don't need"

When your bank extends you a line of credit, which it may do when you close on your mortgage, say no thank you. You can always get a line of credit when you need one, he said, and you may get a better rate by shopping around on the open market rather than taking what's offered by your lender.

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If you do take out a line of credit, pass on a credit card attached to the account and keep the corresponding checkbook in a safety deposit box or other out-of-reach spot that will force you to think before you borrow.

Even if you have no intention to pay off your mortgage, you don't want to wake up one day and realize that you've frittered away one of your most valuable assets.