For example, if you use your line to buy a boat, you may want to pay it off as you would a typical boat loan. Whatever your payment arrangements during the life of the plan--whether you pay some, a little, or none of the principal amount of the loan--when the plan ends you may have to immediately pay the entire outstanding balance.You must be prepared to make this balloon payment by refinancing it with the lender, by obtaining a loan from another lender, or by some other means.

If you are unable to make the balloon payment, you could lose your home. With a variable rate, your monthly payments may change. Assume, for example, that you borrow $10,000 under a plan calling for interest-only payments. At a 10 percent interest rate, your initial montly payments would be eighty-three dollars.

If the rate should rise over time to 15 percent, your monthly payments would increase to $125. Even with payments that cover interest plus some portion of the principal, there could be a similar increase in your monthly payment, unless the agreement allowed keeping payments level throughout the plan.

When you sell your home, you probably will be required to pay off your home equity line in full. If you are likely to sell your house in the near future, consider whether it makes sense to pay the up-front costs of setting up an equity credit line. Also keep in mind that leasing your home may be prohibited under the terms of your home equity agreement.