Updated on November 28, 2006.

THANKS TO SOARING home prices and the attractive mortgage rates we've seen over the past few years, millions of homeowners have tapped their home's equity to pay off bills or fund a remodeling project. And in many cases, this can be a smart thing to do. But it's one thing to draw on the value of your home and another to exceed it. Falling prey to what's known as a "no-equity home-equity loan" not only could cost you a small fortune in interest rates and fees, but it could put your home at risk.

A no-equity home loan is simply a confusing name for a high loan-to-value (LTV) home-equity loan, in which the amount you're borrowing surpasses your home's total value often by as much as 25%. This creates a sort of a hybrid secured/unsecured loan. Not surprisingly, these risky loans are aimed at the truly cash-strapped. And, sadly, that's a booming market.

No-equity home-equity loans became popular back in the late 1990s, when many lenders boldly offered high-risk loans and borrowers felt comfortable taking on additional debt. More recently, rising home values and attractive interest rates for mortgage refinancing have helped even cash-strapped homeowners avoid such excessive borrowing, says Keith Gumbinger, vice president of HSH Associates. But these loans are still available from DiTech (a division of General Motors) and E-Loan, among others.

So what exactly is wrongTo get a sense of how much a traditional refi will cost you, see our worksheet In some cases, a high LTV loan is layered on top of an existing mortgage, which means the higher rate would apply only to the new loan. Other times the entire first mortgage is refinanced while the borrower takes on additional debt. In this case, the higher rate would apply to the entire loan.

And there's more: You'll also be required to carry private mortgage insurance (which typically tacks an additional 0.8% to your balance) on the amount of the loan that exceeds 80% of your home's value, but doesn't yet exceed 100%. (In other words, you'll owe PMI on 20% of the secured part of your loan.)

Other considerations are the tax implications or lack thereof. As you probably know, part of the beauty of a home-equity loan is that up to $100,000 of interest ($50,000 if you're married but filing separately) is tax deductible. But those rules don't apply to high LTV loans. Any interest paid for the amount by which the loan exceeds your home's value doesn't qualify for the tax break.

Selling your home may also pose a problem. Say you get transferred, and you've got $175,000 worth of mortgage and home-equity debt, but you can only sell your house for $145,000. You've got to come up with $30,000, pronto. If you can't come up with the cash when you sell your home, your loan is effectively in default. And at that point you're probably looking at bankruptcy.

Bottom line? Don't get fooled by a sleazy sales pitch. "You want to be cautious about getting into these things because you literally may never be able to get out," Gumbinger says. If you need to borrow more than the equity in your home, it may be cheaper for you to combine a traditional home-equity loan with an unsecured personal loan rather than getting a no-equity loan.