The gradual decline of borrowing rates has not only affected conventional mortgages; reverse mortgages, too, have benefited from the trend.

According to Freddie Mac, the average rate for a conventional mortgage is now less than 4.5%. While comparable figures for reverse mortgages are not currently available, many of the largest lenders are now offering HECM fixed-rate reverse mortgages at 5%. [The difference can mainly be accounted for in the .7 points that the average conventional mortgage borrower pays to the lender in exchange for the lowest rate possible].

Variable rates, meanwhile, are also hovering around record lows, and a variable-rate HECM reverse mortgage can now be had for around 3.5%. In spite of this, most borrowers these days are opting for fixed-rate mortgages, perhaps as a hedge against higher rates. [For an in-depth comparison of fixed versus variable rate mortgages, you can read an earlier post: Reverse Mortgages: Selecting an Interest Rate] Even though there is currently a 150 basis point spread between variable and fixed rate reverse mortgages, there is a risk that variable rates could rise, in which case those that had locked in a fixed-rate (reverse) mortgage would come out ahead over the long-term.

Of course, it’s not clear how long rates will remain at current, low levels. Fixed rates for reverse mortgages have been around 5% for most of the last year, and theoretically, they could begin rising at any moment. In fact, analysts predicted that rates would rise in 2010 thanks to the unwinding of the Fed’s program of buying Mortgage-Backed Securities. Due to lingering concerns of economic recession and deflation, however, their predictions have been stymied and rates have continued to slide.

For those who are trying to time the market, consider that interest rates, home valuations, and your age are the three main factors that determine the amount of money you will receive from your reverse mortgage. Thus, if you take advantage of low rates and obtain a reverse mortgage now, you might be negatively impacted from a low home valuation. On the other hand, if home prices rise, any gains may be offset by rising interest rates.

Ultimately, it’s difficult to “beat the system,” and I would advise you to avoid getting caught up in interest rate and home valuation fluctuations, and instead to obtain a reverse mortgage only when it suits your circumstances. If you guess wrong, you can always refinance.