Almost everyone has one. Your neighbor, your cousin and maybe even your boss. The advertisements make it seem like easy money fast.

Home equity lines of credit are popular with homeowners. They allow you to borrow against your home at a very favorable interest rate. As a plus, the interest you pay may be deductible on your taxes. In 2004, home equity borrowing equalled $431 billion.

Why are so many people taking out home equity loans? Home prices are on the rise. When the value increases, so does your equity. On the other side of the table, the average rate for home equity lines of credit remain low, around 6%. Compare that to a credit card at 14%.

There are drawbacks to these loans. They usually have a variable rate that fluctuates with market rates. If you know that you need a certain amount of money, you may be better of taking out a home equity loan with a fixed interest rate – it will protect you from predicted rate increases. You should expect at least 1% higher in interest in exchange for the fixed rate.

With rates on the rise, some homeowners may be wary of borrowing, but lenders are working hard to keep you interested.

For example, Wells Fargo recently introduced a hybrid home equity loan that offers a fixed rate for three, five or seven years. The loan then converts to a variable rate. Borrowers can choose to make interest-only payments during the fixed-rate period, says Doreen Woo Ho, president of Wells Fargo’s consumer credit group.

Last fall, U.S. Bank gave their customers who take out a home equity line of credit a discount of one-quarter a percentage point every six months, up to 1% below the prime rate. The promotion lasted two months and generated record sales.

Always remember, if you default on your credit cards, you credit goes to pot and you get nasty phone calls. If you default on a home equity line or loan, and you will lose your home.

Home equity lines of credit are useful for ongoing cash needs, such as medical bills or college tuition. Home equity lines are also good for emergencies.

Home equity loans are a good choice if you need a loan for a specific purpose, such as home improvements. They help you have a fixed amount to work with in your budget, and you pay it off over several years.

If you have lots of credit card debt, a home equity loan may be a better choice for you. The loan has a fixed rate and payment schedule that works well for those who are consolidating debt over a longer period of time.

Most home equity lines and loans have eliminated or reduced closing costs. But, beware – many lenders are now charging prepayment penalties on most loans paid off within the first three to five years. The penalty can be as much as a year’s worth of interest. There are soft penalties that are waived if you sell the home. Hard penalties don’t care for what reason you are paying off the loan.

Before you make any decisions, shop around and find out what different lenders will offer you. Anytime interest rates rise, you will find that lenders begin to get creative. Let them work for your business – it’s their job.