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Everyone finds themselves in need of cash at one point or another. Homeowners have an advantage when it comes to accessing money, since they can tap equity built up in their houses.

To best make your home-equity loan work for you, start by determining why you need the funds and in what form you want them. Are you financing a new business, college education, home repairs or something else? Do you need your cash in a single lump sum or as a line of credit over time? Pin down this basic information first, then get a jump on your research.

Home-Equity ABCs

The Federal Reserve has just begun to raise interest rates from a nearly half-century low of 1 percent. Even so, rates are still competitive enough that home equity products are among the most cost-effective ways for homeowners to access cash.

Using your home-equity loan to improve your financial situation, home or future -- debt consolidation, home repairs or a college education, for example -- is your best bet. When you take on any of these endeavors, youre leveraging your home equity to significantly better your life. Its far less wise to borrow for something does not grow or actively depreciates, such as a car or big-ticket vacation.

Should You Refinance?

Like a home-equity loan, a cash-out refinance means youre borrowing against the equity thats accumulated in your house. The difference is this: refinancing means youre taking out an entirely new mortgage, while a home-equity loan or line of credit is a second mortgage. The new mortgage taken out when refinancing is larger than the unpaid principal of the original mortgage.

Your individual situation drives the decision between refinancing and going the home-equity route. A few things to consider: cash-out refinances are usually tax deductible, and home-equity loans are paid off over a shorter time period than refis. This means that with a home-equity loan, youll have a larger monthly payment.

Whether you refinance or use a home-equity loan or line of credit may be influenced by the loans weighted APRs, or the amount of debt multiplied by the associated interest rate.

Using the Money

Once your loan or line of credit is approved, the money is yours to use however you want. As noted above, however, its wise to invest it in something thatll pay off over time.

Heres a look at some of the most common ways borrowers use cash from the equity in their homes:

• Home improvement. This can be an excellent way to pull money out of your home and put it back in in a way thatll benefit you. Using your home-equity loan for home repairs and upgrading not only increases the value of the property, but does so in a tax-deductible way. Do your research before borrowing to make home improvements, though, since some improvements add more value than others. Upgrading your kitchen, for example, boosts the value of your property far more than a swimming pool, which might actually be a liability if potential buyers dont want to be bothered with the upkeep.

• Debt consolidation. If youve decided to cut up your credit cards and transfer the debt to a lower rate, hitting the home-equity loan trail may be your best choice. Using a home-equity loan to pay down credit cards and other high-interest debt can lower your rates up to and beyond 10 percent. In addition, the interest on home-equity loans is tax deductible, while the interest paid on regular credit cards is not.

• If youre borrowing to pay down a rising amount of high-interest debt, you should also be formulating a plan to avoid going into that type of debt in the future. Even though transferring debt to lower-interest obligations such as home-equity loans is preferable, the goal should be to stay as debt-free as possible.

• Higher education. Many borrowers use home-equity loans or lines of credit to finance college tuition for their children or for themselves. This is one of the best ways to use loan money for investing in the future, and provides a good option in case you dont qualify for government-sponsored student loans. You can also choose a home-equity loan that allows you to pay only the interest while your child is in school, with the idea that he or she will pay the principal upon graduation.

• Financing a new business. Homeowners often tap the equity in their home when starting up new ventures, though some financial institutions wont lend for this purpose as they find it too risky. If you decide to take out a loan to finance a business, be certain you feel it has a good chance of success before going through with it.

• Investment. If you choose to invest using cash from your home, you have several options. You can refinance and pull out cash for the investments, or if your current mortgage carries a low rate you might want instead to take out a small second. Another option is setting up a home-equity line of credit to make investments. This may be advantageous since you can tap the line of credit only when a good investment opportunity turns up.

• As with financing a business, using money built up in your house to sock into investments carries its own share of risk. Make sure youre making a calculated choice before signing the paperwork, and remember that a poor decision or market turned sour could cost you your home.

• Other expenditures. Beware of using your loan to pay for items that have no investment value or potential for appreciation. These include cars, vacations, or other expensive trinkets. Its better to save up money and buy these luxuries with the accumulated cash rather than putting the value in your home to finance them. Though many borrowers find their home equity a convenient and low-interest method of paying for the items that catch their fancy, this method could backfire if their situations change and they find themselves unable to pay back the loan. Losing your house isnt worth any boat, car or European junket.