NEW YORK (MONEY Magazine) - Last year thousands of Americans discovered a pot of gold in their own living rooms.

Or so it must have seemed: Spurred by historically low interest rates and sky-high housing prices, homeowners took out $223 billion in new loans backed by the equity in their homes in 2003.

It's crucial to remember how easily this tool can be misused. Fortunately, if you borrow wisely, you can enjoy the extra cash without excess risk.

With that in mind, what follows is everything you must know to understand the various methods of extracting equity from your home and to sort out which, if any, is right for you.

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