(MONEY Magazine) – When you apply for a home loan nowadays, more and more banks and S&Ls let you decide whether you will pay their current mortgage rate or a future one. The future rate might be the one prevailing when you get credit approval, say, or when the bank commits to lend you the money. To make the right choice, it would be nice to be able to predict what's about to happen -- and you can. You can divine where mortgage rates will be in a week or two by simply studying the current yield on 10-year U.S. Treasury notes. Reason: Most mortgage lenders sell their mortgages to such agencies as Ginnie Mae, Fannie Mae and Freddie Mac. In turn, these agencies sell shares in million-dollar pools of loans and funnel the loan payments to investors. Since the investors want bond-like income, your local lender has to make sure his mortgage rates will provide competitive yields. The average mortgage is paid off in about 10 years, so mortgage-backed securities must pay the yield of a 10-year Treasury note -- and then some, recently about 1.75 percentage points. It takes about a week, however, for mortgage lenders to adjust their lending rates to any changes in Treasury yields. Therefore, anyone wanting to know how much mortgage rates will change over the next week or so need only look up the daily moves in 10-year Treasury yields (currently 7.91% and falling) in their local newspaper's financial pages. If you saw Treasuries drop half a point over two days, you'd want to put off nailing down the rate with your lender. The corresponding half-point drop in a mortgage rate would shave about $40 off the monthly payment on a $100,000 loan.

BOX: COMMON INDEXES FOR ARMs

One-year Treasury constant maturity 8.22% 11th District cost of funds 8.76 National mortgage contract rate 9.82

Note: averages are for September, August and September respectively

Source: HSH Associates

CHART: NOT AVAILABLE CREDIT: Source: HSH Associates CAPTION: BEST RATES IN THE 24 LARGEST METRO AREAS

CHART: NOT AVAILABLE CREDIT: Source: HSH Associates CAPTION: TOP FIXED RATES IN THE 24 LARGEST METRO AREAS

CHART: NOT AVAILABLE CREDIT: Source: HSH Associates CAPTION: TOP ARMS IN THE 24 LARGEST METRO AREAS