How Does a Reverse Mortgage Work?

If you’ve ever wondered how a reverse mortgage works ? you’re not alone. For many homeowners, especially seniors, most of their wealth is tied up in their house. A reverse mortgage sounds like an easy fix, get cash without moving.

But here’s the problem: reverse mortgages can be complicated, expensive, and risky. The good news? There’s a better way to unlock your equity without piling on debt.

What Is a Reverse Mortgage?

A reverse mortgage is a loan for homeowners over 62. Instead of paying the bank each month, you borrow against your equity and the bank pays you;  a lump sum, monthly check, or credit line.

Sounds simple. But the loan balance grows with interest and fees. And when you move out or pass away, the loan must be repaid, usually by selling the home.

Learn more at the Federal Trade Commission  https://consumer.ftc.gov/articles/reverse-mortgages

The Hidden Costs

Here’s what most ads don’t tell you:

• Big upfront fees (insurance, origination, closing).
  
  
• Rising debt as interest keeps stacking up.
  
  
• Strict rules: miss taxes or insurance, and you risk foreclosure.
  
  
• Inheritance shrinkage: heirs may get little or nothing.
  
  

The Consumer Financial Protection Bureau (CFPB) warns that these loans can quickly drain a homeowner’s equity.

Why Homeowners Look for Alternatives

Reverse mortgages aren’t always the right fit if you:

• Need fast cash
  
  
• Want to avoid new debt
  
  
• Care about leaving equity for your family
  
  
• Don’t want to risk foreclosure over fine print
  
  

That’s why more homeowners are choosing sale-leasebacks.

Sale-Leasebacks: A Smarter Move

With a sale-leaseback, you sell your house to an investor and rent it back. That means:

• Cash in your pocket right away
  
  
• Stay in your home, no moving trucks needed
  
  
• No new debt, just a simple lease and rent due
  
  
• Save thousands by dropping taxes, repairs, and HOA fees
  
  

Reverse Mortgage vs. Sale-Leaseback

According to AARP, many borrowers are surprised by the true costs of reverse mortgages.

Why Choose Sell2Rent?

At Sell2Rent, we help homeowners turn equity into opportunity, without risky loans.

• Nationwide investor network
  
  
• Transparent process
  
  
• Flexible lease terms
  
  
• No hidden fees
  
  
• Average savings of $10,000 a year after selling and renting back

FAQs About Reverse Mortgages

1. Is a reverse mortgage safe?

A reverse mortgage is a federally regulated product, but that doesn’t mean it’s risk-free. High fees, compounding interest, and strict rules around taxes and insurance can put homeowners at risk of foreclosure. That’s why it’s important to explore safer options like a sale-leaseback, which avoids debt altogether.

2. What’s the biggest drawback of a reverse mortgage?

The biggest drawback is how quickly it eats away at your equity. Interest and fees pile up every month, which means there may be little or nothing left for you, or your heirs, when the loan comes due. If you’re already struggling with payments, you may want to review alternatives to foreclosure.

3. What’s the alternative to a reverse mortgage?

A sale-leaseback is one of the simplest alternatives. You sell your home for cash and rent it back, so you stay in place without taking on debt. Unlike a reverse mortgage, your equity isn’t drained by interest or insurance premiums. Learn more about how a sale-leaseback works and why it’s growing in popularity.

4. Who should consider a sale-leaseback instead?

Homeowners who:

• Need fast cash without waiting on a loan process
  
  
• Want to avoid foreclosure or bankruptcy (see our foreclosure guide)
  
  
• Prefer to skip the stress of repairs, taxes, or HOA fees (selling as-is explained here)
  
  
• Want to stay in their home without adding new debt
  
  

For many, this option provides immediate relief and long-term stability. You can also check our closing costs guide to see how a leaseback compares to traditional selling.

Conclusion

So, how does a reverse mortgage work? It’s a loan that chips away at your home equity, piles on fees, and comes due when you least expect it.

If what you really want is fast cash, freedom from homeownership costs, and the ability to stay in the home you love, Sell2Rent’s sale-leaseback might be the smarter choice.