What is the difference between a second charge mortgage and equity release?
A second charge mortgage is extra borrowing secured on a home, usually beside an existing mortgage, with contractual repayments. Equity release is not one product. A lifetime mortgage is a loan you repay later and you keep ownership. A home reversion plan is a sale of some or all of the home, with a right to live there. Repayment, interest and ownership differ, so the exact product matters.
Swipe to see more columns
A lifetime mortgage leaves ownership with you. A home reversion plan does not, for the share you sell. Comparing "equity release" as if it were one product hides that difference.
How does a second charge mortgage work?
A second charge mortgage is a loan secured behind an existing first mortgage on the same property. It normally has its own amount, term, interest-rate structure and repayment schedule. The property is security for both mortgages, and the lender assesses the application under its criteria and applicable rules.
More detail on how a second charge sits alongside a first mortgage is available on the second charge mortgages hub.
What is equity release and what types are there?
Equity release is an umbrella term, not a single product. A lifetime mortgage is a loan secured on the home: you remain the owner, and interest often rolls up until the loan is repaid. A home reversion plan means selling some or all of the home to a provider, usually below market value, while keeping a right to live there. You no longer own the share you sell.
The price paid for a home reversion share is often less than its open-market value. That discount, and the share sold, is the provider's return. It is not the same thing as interest added to a lifetime mortgage.
How do repayments and interest differ?
A second charge mortgage usually has scheduled repayments during the term. On a lifetime mortgage, you may make no monthly payments, pay interest, or make voluntary payments, and unpaid interest can roll up. A home reversion plan is not repaid like a loan: the provider has bought a share of the home. Compare the written terms and illustrations for the specific product.
The APRC explained guide covers how a comparable annualised cost figure works for standard mortgage borrowing, which can be a useful reference point when reading a second charge illustration.
What questions help compare the two?
A comparison should name the product: a second charge mortgage, a lifetime mortgage, or a home reversion plan. Useful questions cover the existing mortgage, repayments or rolled-up interest, whether ownership stays with you, fees, and what could be left in the estate. These questions organise the product documents. They do not produce one answer for every homeowner.
Questions worth taking to the relevant provider or a regulated adviser include how the existing mortgage is treated, what happens to interest over time, what fees apply, and how the plan could affect an estate. Fee categories relevant to second charge products are covered in second mortgage fees.
Sources
- Equity release (MoneyHelper)
- Second charge or second mortgages (MoneyHelper)
- MCOB handbook (Financial Conduct Authority)
- Financial Services Register (Financial Conduct Authority)
Frequently asked questions
Is equity release the same as a second mortgage?
No. A second charge mortgage is extra borrowing secured behind an existing first mortgage, with scheduled repayments. A lifetime mortgage is also a loan, but you usually repay it later and you keep ownership of the home. A home reversion plan is different again: you sell some or all of the home and keep a right to live there. Equity release is only the umbrella name for those two products.
Do you make monthly repayments on equity release?
Not in the same way. A second charge mortgage usually has scheduled monthly repayments. A lifetime mortgage may have none: interest can roll up, or the plan may allow interest payments or voluntary repayments. A home reversion plan is not a loan to repay. You have sold a share, so there is no interest bill of the same kind.
Can you have an existing mortgage with equity release?
An existing mortgage normally needs to be considered or repaid under the terms of a particular equity release product, since eligibility and rules vary between providers. A general guide cannot state how any individual case would be treated, so the relevant provider or a regulated adviser can confirm the position.
Does equity release affect inheritance?
Yes, but the mechanism differs. A lifetime mortgage can reduce what is left because the loan and rolled-up interest are repaid from the home. A home reversion plan can reduce what is left because you no longer own the share you sold. Ask the provider for an illustration of that specific product before proceeding.
Is a second charge mortgage available to over-55s?
Age alone does not determine second charge eligibility. Lenders can consider affordability, property, credit history and other criteria regardless of the applicant's age, subject to their own policies. Age-related eligibility rules are more commonly associated with equity release products than with second charge mortgages generally.