A HELOC (Home Equity Line of Credit) is a type of second mortgage, secured by the home's value. It is a more flexible form of financing than a fixed-term home equity loan because the homeowner can borrow up to the line of credit, pay the balance down and borrow the money again over the term of the loan agreement. In contrast, a standard home equity loan is for a defined amount and is repaid in equal payments over the loan term.

HELOCs are convenient for funding intermittent needs, such as paying off credit cards, making home improvements, or paying for college tuition. You draw and pay interest only on what you need, and upfront costs are relatively low. One way to draw on your HELOC line includes writing a check.

One important consideration is that HELOCs are subject to interest rate increases. Home equity loans have a fixed interest rate. HELOCs are variable-rate loans, where the interest rate fluctuates with changes in the interest rate of the index that the loan is based upon. For example, the interest rate on many HELOCs is based on the prime lending rate. Changes in the prime rate will trigger changes in the HELOC's interest rate, and this can happen very quickly.