If you own your home and want to access the equity tied up in it, there are broadly two categories of product available: conventional secured borrowing (which includes HELOCs and second charge mortgages) and equity release (which includes lifetime mortgages and home reversion plans). Both allow homeowners to turn property value into usable funds, but the way they work, what they cost over time, and who they are designed for are fundamentally different.
This guide compares the two product categories side by side. It explains the structural differences, shows how the cost mechanics diverge over time, and sets out who each category is typically designed for. It does not provide advice on whether either product is suitable for any individual. Equity release is a regulated advice area, and anyone considering an equity release product should seek advice from a qualified equity release adviser. All figures used in this guide are illustrative only.
At a Glance
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A HELOC is a revolving credit facility with monthly repayments, available to homeowners with sufficient income and equity. It is short-to-medium term secured borrowing, typically repaid within five to thirty years.
The borrower draws funds as needed during a draw period (typically two to five years in the UK), makes monthly repayments on the drawn balance, and repays the facility in full over the remaining term. The property is at risk if repayments are not maintained. At the end of the term, the loan is fully repaid and the property passes to beneficiaries unencumbered by the debt.
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Equity release (typically a lifetime mortgage) is designed for homeowners aged 55 or over. There are no mandatory monthly payments. Interest compounds over the borrower’s lifetime and is repaid when the property is sold.
The borrower receives a lump sum or drawdown facility and does not make monthly repayments. Instead, interest accrues on the outstanding balance and is added to the debt. The loan, plus all accumulated interest, is repaid from the sale proceeds when the borrower dies or moves into long-term care. Products meeting Equity Release Council standards include a no-negative-equity guarantee, meaning the borrower or their estate will never owe more than the property is worth.
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The cost structures are completely different, even when headline rates look similar. HELOC interest is paid monthly and the balance reduces to zero. Equity release interest compounds without monthly payments, and the balance grows over time.
At an illustrative rate of 6%, a £50,000 HELOC repaid over fifteen years would cost roughly £25,800 in total interest. The same £50,000 as an equity release lifetime mortgage at 6% with no monthly payments would grow to approximately £160,000 after twenty years through compounding alone. The headline rate is the same; the total cost is radically different. This is not a flaw in equity release, it is a consequence of the product design, but it is essential to understand before comparing the two.
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Eligibility is different. A HELOC requires income-based affordability. Equity release does not, because there are no monthly repayments to assess affordability against.
This is a critical practical difference. Homeowners who have retired or who have limited income may not qualify for a HELOC or any other conventional secured loan, but may qualify for equity release. Conversely, homeowners under 55 cannot access equity release at all, and those over 55 with sufficient income have the option of either category. The right choice depends on individual circumstances and should be discussed with an appropriate adviser.
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Equity release is a regulated advice area. Anyone considering equity release should seek advice from a qualified equity release adviser before making any decisions.
This guide explains the differences between the two product categories to help readers understand which category may be relevant. It does not provide advice on whether either product is suitable for any individual. The regulatory frameworks, consumer protections, and advice requirements differ between the two categories, and making an informed decision requires specialist guidance.
What is equity release?
Equity release is a category of financial product that allows homeowners, typically aged 55 or over, to access the value tied up in their property without selling it and without making monthly repayments. The most common form is a lifetime mortgage, where the borrower takes a lump sum or drawdown facility secured against their home, and the loan plus accumulated interest is repaid from the sale proceeds when the borrower dies or moves permanently into long-term care.
The defining feature of a lifetime mortgage is that there are no mandatory monthly repayments. Interest accrues on the outstanding balance and is added to the debt, which means the amount owed grows over time through compounding. Some products allow voluntary payments to reduce or manage the accumulating interest, but this is optional and not a feature of all products. The second, less common, form of equity release is a home reversion plan, where the borrower sells a share of the property to the provider in exchange for a lump sum or regular income, while retaining the right to live in the property.
Equity release products that meet the standards of the Equity Release Council include a no-negative-equity guarantee, which means the borrower or their estate will never owe more than the property is worth, regardless of how much interest has accumulated. This is a significant consumer protection. Equity release is regulated by the Financial Conduct Authority, and providers are required to ensure that customers receive advice from a qualified equity release adviser before proceeding. This guide does not constitute advice on equity release products.
How a HELOC differs from equity release
The simplest way to understand the difference is this: a HELOC is a loan that gets repaid during the borrower’s lifetime through monthly payments. Equity release is a loan that gets repaid after the borrower’s lifetime (or on moving into care) from the sale of the property. Everything else flows from that core distinction.
Because a HELOC requires monthly repayments, it requires income-based affordability. The lender needs to be satisfied that the borrower can maintain payments throughout the term, including under stress-tested scenarios where the interest rate is higher than the current rate. Equity release does not require income-based affordability because there are no monthly repayments to assess. This makes equity release accessible to homeowners whose income would not support conventional borrowing, including many retirees.
The age profile is different. HELOCs are available to homeowners of any age who meet standard lending criteria (though maximum age at end of term does apply). Equity release is typically only available to homeowners aged 55 or over, and the amount available increases with age because the lender’s exposure period is shorter for older borrowers.
The impact on the estate is fundamentally different. A HELOC is repaid during the borrower’s lifetime, so the property passes to beneficiaries free of the HELOC debt. Under equity release, the property is typically sold after the borrower’s death, the loan plus all accumulated interest is repaid from the proceeds, and any remaining equity passes to beneficiaries. Because interest compounds over many years, the amount left for beneficiaries can be significantly reduced. Some equity release products offer an inheritance protection feature that guarantees a percentage of the property value will be preserved for the estate, though this typically comes with a lower maximum release amount or a higher rate.
Side-by-side comparison
The table below sets out the main structural differences between a HELOC and equity release (lifetime mortgage) across the criteria that matter most when deciding which category of product is relevant.
| Feature | HELOC | Equity release (lifetime mortgage) |
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| Product type | Second charge mortgage with revolving drawdown | Lifetime mortgage (first or sole charge) |
| Minimum age | No minimum (standard lending age limits apply) | Typically 55+ |
| How funds are received | Revolving: draw, repay, redraw during draw period | Lump sum or drawdown (depending on product) |
| Monthly payments | Required (on drawn balance during draw period; capital plus interest during repayment period) | None required (interest rolls up). Some products allow voluntary payments. |
| How interest works | Charged on drawn balance. Paid monthly. Balance reduces over time. | Compounds on the full balance. No monthly payments. Balance grows over time. |
| Income requirement | Yes (affordability assessment required) | No (no monthly repayments to assess) |
| Typical term | 5 to 30 years | Lifetime (repaid on death or move into care) |
| Typical rates (illustrative) | 6.5% to 13.0% variable (at the time of writing) | 5.5% to 8.0% fixed for life (at the time of writing) |
| Total cost over time | Capped: loan is fully repaid over the term | Uncapped in nominal terms (debt roughly doubles every 12 years at 6%). No-negative-equity guarantee limits liability to property value. |
| Impact on estate | Loan repaid during lifetime. Property passes to beneficiaries unencumbered. | Loan plus accumulated interest repaid from sale proceeds. Remaining equity passes to beneficiaries. |
| No-negative-equity guarantee | Not applicable (loan is repaid during lifetime) | Yes (on Equity Release Council compliant products) |
| Regulated advice required | No (though broker access recommended) | Yes (must receive advice from a qualified equity release adviser) |
| Keeps existing mortgage? | Yes (sits alongside as second charge) | No (existing mortgage must be repaid, typically from equity release proceeds) |
The rate row in this table deserves particular attention. Equity release rates can look lower than HELOC rates on a headline basis, but the total cost over time is dramatically different because of how interest works under each product. The next section explains why.
How compound interest changes the cost picture
The most important thing to understand when comparing a HELOC with equity release is how interest accumulates under each structure. On a HELOC, interest is charged monthly on the drawn balance and is paid through monthly repayments. The balance reduces over time and reaches zero at the end of the term. On a lifetime mortgage, interest is not paid monthly. It is added to the outstanding balance, and interest then accrues on the new, larger balance. This is compound interest, and over a period of decades it produces a dramatically larger total cost than the headline rate alone suggests.
The illustrative example below shows how a £50,000 borrowing amount behaves over time under each structure, using the same 6% illustrative rate for both. The figures are simplified for comparison purposes and do not represent a specific product offer.
£50,000 borrowed at 6%: HELOC vs equity release over 20 years
Illustrative comparison showing how the outstanding balance changes under each product structure
After 10 years
After 15 years
After 20 years
All figures are illustrative and simplified. HELOC figures assume a 15-year capital-plus-interest repayment. Equity release figures assume annual compounding at 6% with no voluntary payments. Actual costs depend on the specific product, rate, and borrower circumstances.
The visual makes the difference clear. Under a HELOC, the borrower pays interest monthly, the balance declines steadily, and the loan reaches zero within the term. The total interest paid is capped by the repayment structure. Under equity release, interest is not paid monthly but is added to the balance, which then generates its own interest. At 6%, the debt roughly doubles every twelve years. Over a period of twenty to thirty years, which is common for equity release taken in the late fifties or early sixties, the compounding effect is substantial.
This does not mean equity release is a poor product. It is designed for borrowers who cannot or do not want to make monthly repayments, and the no-negative-equity guarantee means the borrower’s liability is capped at the value of the property. But it does mean that comparing the two products on headline rate alone is misleading. A 6% equity release product and a 7% HELOC can look close on paper, but the total cost over the borrower’s lifetime may differ by tens of thousands of pounds.
Who each product is typically designed for
HELOCs and other conventional secured loans are typically designed for homeowners who have sufficient income to meet monthly repayments and want to borrow against their equity for a specific purpose over a defined period. The borrower draws the funds, makes repayments, and repays the facility within the agreed term. This structure suits borrowers who can afford the monthly commitment and who want to preserve the full value of their estate for beneficiaries. The guide to what is a HELOC covers the product mechanics in full.
Equity release is typically designed for homeowners aged 55 or over who want to access their property wealth without making monthly repayments. Common reasons include supplementing retirement income, funding home adaptations, helping family members onto the property ladder, or paying for care costs. Because there is no affordability requirement based on income, it is accessible to borrowers who have retired or who have limited income that would not support conventional borrowing.
For homeowners under 55, the decision is straightforward: equity release is not available, and a HELOC, second charge mortgage, or remortgage is the relevant category. For homeowners over 55 with sufficient income, both categories may be available, and the choice depends on individual circumstances including the purpose of the borrowing, the borrower’s income position, their attitude to monthly payments, and their priorities regarding inheritance. This is exactly the type of decision where specialist advice adds value. Anyone considering equity release should speak to a qualified equity release adviser, and anyone considering a HELOC or second charge mortgage may benefit from speaking to a mortgage broker.
Can you have both a HELOC and equity release?
In theory it is possible to have both products on the same property, but in practice this is extremely rare and introduces significant complexity. An existing HELOC (which is a second charge on the property) would need to be repaid or accounted for in any equity release arrangement, because equity release lenders typically require a first and sole charge on the property. Similarly, taking a HELOC on a property that already has an equity release product would be very difficult because the equity release lender holds a charge and the remaining equity available for a second charge is reduced by the accumulated interest on the lifetime mortgage.
For most homeowners, these are either/or decisions. A borrower moving from conventional secured borrowing to equity release would typically repay the existing HELOC (either from the equity release proceeds or from other funds) as part of the transition. A borrower moving from equity release to conventional borrowing would need to repay the lifetime mortgage in full, including all accumulated interest, which may require a sale or a remortgage of sufficient size to clear the balance. In both directions, the costs of the transition need careful consideration. This is another area where specialist advice is essential.
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Checking won’t harm your credit scoreFrequently asked questions
Is equity release cheaper than a HELOC?
On a headline rate basis, equity release rates can appear similar to or lower than HELOC rates. At the time of writing, illustrative equity release rates typically range from 5.5% to 8.0% fixed for life, while HELOC rates typically range from 6.5% to 13.0% variable. However, the total cost over time is very different because equity release interest compounds without monthly payments. A lower headline rate with compounding can produce a far higher total cost than a higher headline rate with monthly repayments.
The illustrative comparison earlier in this guide shows that £50,000 at 6% under each structure produces very different outcomes over fifteen to twenty years. The HELOC is fully repaid with approximately £25,800 in total interest. The equity release balance has grown to approximately £160,400 after twenty years. The headline rate is not the right basis for comparing these products; the total cost over the realistic period is.
Can I get a HELOC if I am over 55?
Yes. There is no upper age threshold that automatically prevents a homeowner from obtaining a HELOC. However, the lender will assess affordability based on income, and the maximum age at the end of the loan term does apply (this varies by lender but is typically 75 to 85). Borrowers who are retired but have pension income, rental income, or other regular income may still meet the affordability requirements for a HELOC.
For homeowners over 55 who have sufficient income to support monthly repayments, a HELOC or standard secured loan will typically produce a lower total cost than equity release because interest is paid monthly rather than compounding. The trade-off is that monthly payments are required, which reduces disposable income. The choice between the two depends on the borrower’s income position, their priorities regarding monthly cash flow, and their attitude to the impact on their estate.
Does equity release affect means-tested benefits?
It can. If equity release funds are received as a lump sum and are not spent immediately, the money may be treated as capital for the purposes of means-tested benefits such as Pension Credit, Council Tax Reduction, and Universal Credit. The capital thresholds vary depending on the benefit, but as a general guide, capital above £6,000 can start to affect entitlement to some benefits (including Universal Credit), and capital above £16,000 can disqualify a claimant from most means-tested benefits entirely.
Some equity release products offer a drawdown facility, where the borrower takes an initial lump sum and then draws further amounts as needed. This can reduce the impact on means-tested benefits because only the drawn amount counts as capital. However, the interaction between equity release and benefits is complex and depends on individual circumstances. Anyone who receives or expects to receive means-tested benefits should seek advice from a benefits adviser as well as an equity release adviser before proceeding.
Can I make voluntary payments on an equity release lifetime mortgage?
Some lifetime mortgage products allow voluntary payments, but this is not a standard feature of all products and the terms vary. Where voluntary payments are permitted, they typically allow the borrower to pay some or all of the interest each month, preventing or reducing the compounding effect. This can significantly reduce the total cost over time and preserve more equity for beneficiaries.
Products that allow voluntary payments may be described as “interest-serviced” lifetime mortgages. The availability and terms of these products depend on the lender and the borrower’s circumstances. A qualified equity release adviser can explain which products offer this feature and whether it is suitable for the borrower’s situation.
What happens to my home when I die?
Under a HELOC, the loan is typically repaid from the borrower’s estate after death, either from other assets or from the sale of the property. If the loan has been fully repaid during the borrower’s lifetime (which is the normal outcome if repayments have been maintained), the property passes to beneficiaries free of the HELOC debt. If any balance remains, it must be repaid from the estate.
Under equity release, the property is typically sold after the borrower’s death (or the death of the last surviving borrower, for joint products), and the loan plus all accumulated interest is repaid from the sale proceeds. Any remaining equity after the debt is repaid passes to the beneficiaries. Because interest has compounded over the borrower’s lifetime, the amount remaining for beneficiaries depends on how long the borrower lived after taking the product and how much the property has changed in value. The no-negative-equity guarantee (on Equity Release Council compliant products) ensures that the estate will never owe more than the property is worth, even if the accumulated debt exceeds the property value.
Squaring Up
A HELOC and equity release are fundamentally different products designed for different circumstances. A HELOC is conventional secured borrowing with monthly repayments and a defined term. Equity release is a lifetime product with no mandatory monthly payments and interest that compounds over decades. Headline rates may look similar, but the total cost over time is dramatically different because of how interest accumulates under each structure.
For homeowners under 55, equity release is not an option and conventional secured borrowing is the relevant category. For homeowners over 55 with sufficient income, both categories may be available, and the right choice depends on income, priorities regarding cash flow, and attitude to the impact on the estate. Equity release is a regulated advice area, and anyone considering it should seek advice from a qualified equity release adviser.
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Checking won’t harm your credit score Check eligibilityThis article is for informational purposes only and does not constitute financial advice. Your home may be at risk if you do not keep up repayments on a mortgage or other debt secured against it. Equity release is a regulated advice area. Anyone considering an equity release product should seek advice from a qualified equity release adviser. This guide does not provide advice on whether any product is suitable for any individual. Actual outcomes will depend on your individual circumstances.
