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Interest rates have been rising, discouraging many would-be borrowers. But homeowners with a stomach for risk should take a look at home equity lines of credit.

Many HELOCs start out charging only 3 percent, some even less, according to the BankingMyway.com search tool. And the typical HELOC has no closing costs.

That makes the HELOC a good way to pull cash out of your home to pay off high-interest credit card debt or cover some other expense.

But there are risks. Because the HELOC has a floating interest rate, you don’t know what you’ll be charged in the future. And since these loans use your home as collateral, you could lose your property if you fall behind in payments.

Like a credit card, a home equity line of credit provides a credit limit that you draw against as needs arise. Payments are figured every month by applying that month’s rate to the current debt.

(In contrast, a home equity installment loan works like a mortgage. You borrow a lump sum at the start and typically make fixed payments at a fixed interest rate for the life of the loan.)

Unlike a credit card, interest payments on a HELOC are generally tax deductible.

In shopping for a HELOC, don’t be seduced by the initial rate, which may be low to attract customers. It is much more important to know how future rates will be figured, as they generally can change as often as every month.

When the loan is granted, you’ll be given a “margin” good for the life of the loan. This is a number of percentage points added to a floating index, typically the prime rate.

Today, the prime rate is 3.25 percent. A borrower with good credit can typically get a margin of around 2 percentage points, producing a loan rate of 5.25 percent.

For example, Bank of America (Stock Quote: BAC) offers borrowers in Pennsylvania a loan at prime plus 2.12 percent. Payments on a $50,000 loan would be $220 per month, compared to about $400 you’d pay on an ordinary 15-year home equity installment loan at the same rate.

Why the difference? Because the HELOC only requires that you pay interest every month, rather than interest plus principal. The installment loan requires principal as well as interest.

In fact, Bank of America will cut the HELOC rate even further for customers who borrow at least $25,000 right away and have their monthly payments automatically withdrawn from a checking or savings account at the bank. In that case, the margin would be just 1.37 percent, producing a rate of 4.62 percent.

A key question: how high could the prime rate go? It’s been 3.25 percent since the beginning of the year but was 8.25 percent as recently as Sept. 2007. In fact, before this year it had not been this low since the mid-1950s.

If the economy recovers, the prime rate could easily rise to a more typical 6 or 7 percent. Your monthly payments on a given loan balance could nearly double.

Bottom line: A HELOC can be a good deal for a disciplined borrower who can handle higher monthly payments or has resources to pay the loan off if rates get too high. The Federal Reserve has a good guide to questions to consider.

Use the search tool to find deals with low starting rates, and be sure to ask how long those rates stay in place before adjustments begin. The Interest Only Mortgage Calculator will figure your minimum payments for given levels of debt.

— For more ways to save, spend, invest and borrow, visit MainStreet.com.