Mortgage bankers eagerly want to make 2004 the year of the home equity loan. But first they have to clear up some misconceptions.

Many homeowners don't understand what an equity loan is. Lenders worry that consumers believe equity loans have high closing costs and are a hassle to apply for. And bankers think that a lot of potential borrowers don't know the differences between home equity loans and equity lines of credit.

These issues are coming up because mortgage rates have risen 1 percentage point in the past year. With that rise in rates came the end of the long refinancing boom.

Last year, almost half of refinancing borrowers did "cash-out refis" -- they refinanced for more than they owed and pocketed the difference. Now that rates are higher, homeowners don't want to refinance again.

"The only way to cash out is to take out a home equity loan or line," says Anthony Hsieh, president of HomeLoanCenter.

Lenders are chasing after equity borrowers by offering airline miles and gift cards at stores such as Costco.

What, exactly, is a home equity loan? In a Lending Tree-sponsored survey of 802 homeowners, 20 percent of the respondents agreed with the statement: "Home equity loans and second mortgages are two names for the same thing." They were right. The other 80 percent said, incorrectly, that home equity loans and second mortgages are different things.

When you get a home equity loan, you are borrowing against your ownership stake in the house. The equity is the value of the house minus your mortgage balance. A home equity loan uses your equity as collateral.

You receive an equity loan as a lump sum and repay it over a set time, usually at a fixed rate and for the same payment each month. A home equity line of credit is a type of equity loan that works like a credit card. It has a credit limit and a revolving balance, meaning that you can borrow up to a certain amount, pay some or all of it back, then borrow again up to the limit. Rates on most lines of credit vary as the prime rate moves up and down.

Because they come in a lump sum, home equity loans generally are recommended for one-time expenses -- to consolidate credit card debt, pay for a new roof or buy a business. Equity lines of credit often are recommended for recurring expenses such as college tuition or multistage projects such as home renovations, or to hold in reserve for emergencies such as job layoffs.

A line of credit starts with a draw period and ends with a repayment period. During the draw period, the homeowner can borrow against the credit line by using a charge card or a checkbook. Minimum monthly payments cover only the interest during the draw period.

Rates on home equity loans tend to be higher. We're near the bottom of the rate cycle, so someone who closes today on a variable-rate equity line of credit will probably end up paying a higher rate than a neighbor who closes today on a fixed-rate home equity loan.

"But you've got a long way to go because it's still a big spread between home equity loans and home equity lines of credit," says Brian Regan, vice president and chief consumer officer for Lending Tree.

Lenders are looking for equity customers to replace their vanishing refinancing borrowers. In addition to dangling incentives such as airline miles, they are touting the low expense of applying for equity debt. A few years ago, homeowners had to pay closing costs -- usually between $150 and $800 -- for equity loans or lines of credit.

But now many equity lines of credit come with no fees, especially if the borrower makes an initial draw (akin to a credit card charge) when the account is opened. Sometimes you have to make an initial draw of thousands of dollars to get the fees waived. With equity loans, aggressive lenders charge either no fees or a few hundred dollars' worth.