Home equity lines of credit, or HELOC's, are great ways to access your home's equity without resorting to refinancing your existing home mortgage. But what exactly is a home equity line of credit and how do they work?

A home equity line of credit is like a second mortgage. It is in second position behind your first home mortgage. Home equity lines of credit were originally used to help borrowers purchase homes without paying private mortgage insurance and to access their home's equity without having to do a cash-out refinance on their existing mortgages at possibly higher interest rates.

Key Points of a home equity line of credit

• The interest rate is variable and based on prime.
• Home equity lines of credit are interest only loans for 10 years then fully amortized for 20 years.
• If you have $100,000 home equity line of credit and want to use $25,000 of it to build a deck, you only pay interest on the amount of the credit line you borrow.
• Many lenders are now offering low and no cost home equity lines of credit.
• Most lenders are now allowing you to fix the interest rate to a "fixed rate" for all or a portion of your home equity line of credit which saves you from a potentially costly refinance.

Whether you are looking to improve your current home, consolidate debt, or buy a new car, your home's equity might be the best place to borrow. To possibly save yourself some refinancing money, it's important to talk to your current lender or loan officer to see if you can qualify for a home equity line of credit.