There are times when people find themselves unable to pay bills on consumption expenditure or certain outstanding debts like education loans etc. or they want finance for remodeling their home or purchasing a second residential property. It is during this time that they look for alternative sources of credits. Among the numerous alternatives in hand during the time of need, one option that has gained increasing attention is home equity loans. Home equity loan have been gradually accepted as a source of funding because they provide large amount of cash at lower rates of interests and also provide tax advantages. The proportion of homeowners with home equity loans was only 5 percent in 1977 however, with the Tax Reforms Act of 1986 they have increased to 13 percent in 1997(Federal Reserve Bulletin, 1998).

However, these kind of loans have an associated risk i.e. the risk that consumer