AMERICANS have used the run-up in real estate values in recent years to build financial flexibility for themselves, and many homeowners reasonably believe they can use their home equity in case of an unexpected illness, loss of job or other emergencies.

But if they wait until an emergency actually strikes to apply for a home-equity loan, they may be in for a painful shock, financial advisers and mortgage executives say. The very nature of some financial emergencies, like unemployment, may disqualify an applicant from a loan.
A better alternative for many, planners say, is to open a relatively small home-equity line of credit and leave it untouched until a true emergency arises.

“It’s always good to have some place to go in an emergency where you can just write a check without asking someone,” said Dick Bellmer, chairman of the National Association of Personal Financial Advisors. “And a home-equity credit line will, in most cases, be the cheapest way to obtain that debt, because it’s tax deductible.”

Home-equity credit lines work much the same way as credit cards, but they also have important advantages. Not only is the interest paid on the loan’s balance typically tax deductible, but the interest rates themselves are much lower than those on credit cards. As of late July, many companies offered these loans to borrowers with good credit at interest rates that were equal to the prime rate, or even slightly below — roughly 8.25 percent. The average interest rate on a credit card, meanwhile, is about 14.5 percent, and it is generally not tax deductible.