t's the question every potential homebuyer is asking: How low will mortgage rates go and how long will the low rates last?

Rates for 30-year mortgages are at their lowest point in four years with average rates below 7 percent recently. If you're thinking of buying or refinancing the loan on your home, the answer can save - or cost - you tens of thousands of dollars over the life of the loan. The trick, of course, is not committing to a mortgage if you think rates will drop even further. What should you do?

Arm yourself with information about how mortgage rates are determined. Mortgage rates are closely correlated to interest rates and other indicators in the economy, so knowing what will happen to these indicators this year might help you make your decision. There's only one problem: Economists are about as bad at forecasting future interest rates as your local weather man is at forecasting next week's weather. Economics is called the "Dismal Science" for a reason. In his forthcoming book, The Fortune Seekers, forecasting expert William Sherden concludes, "Economists' forecasting skill on average is about as good as guessing."

But while you might do no better than most economists in predicting the interest rates for later this year, you can use some of the same tools they use to find out when rates are starting to turn up. If you're in a position to act quickly, you can grab a mortgage rate at close to the bottom of the rate cycle.

Professional economists pour over dozens of statistics to come up with their forecasts of future interest rates. However, for mortgages, only a handful of these numbers are really important, and they're regularly reported on a number of Web sites. The key statistics are the yield on 10-year Treasury bonds, the Department of Labor employment report, the consumer price index (CPI), the producer price index (PPI) and the gross domestic product (GDP).

Many people think the key interest rate to look at when thinking of 30-year fixed mortgages is the 30-year Treasury bond rate. However, the 30-year Treasury rate is structured for payments due in 30 years. Mortgages are repaid monthly (or biweekly) over the course of 30 years. But mortgages are viewed on a shorter-term repayment schedule because most people pay off their mortgages in less than 30 years, usually by selling their homes. So the real indicator to look at is not the 30-year Treasury bond but Treasuries of shorter duration, particularly the 10-year Treasury bond.

The most dramatic drop in rates recently has been in short- and intermediate-term sectors of the Treasury market. It's an indicator, according to some experts, that the Federal Reserve Board may lower interest rates even further. According to the Mortgage Bankers' Association's chief economist, David Lereah, mortgage rates "trade off" 10-year Treasuries. That means that when 10-year Treasuries go up, mortgage rates go up; and when they go down, so do mortgage rates.

The accompanying chart shows how the 10-year Treasury bond rate and 30-year fixed mortgage rates move in tandem.

So what does this mean? Well, if you're in the market for a mortgage, and have mortgage commitments, you can track the 10-year Treasury bond rate daily. If the 10-year Treasury rate heads up, it's a good guess that mortgage rates will follow. The good news is that mortgage rates usually don't respond immediately. So you should have time to make your move.

Historically, the employment report, released by the Labor Department on the first Friday of every month, has been an important indicator of interest rates. This report estimates the number of workers added to the non-farm payroll.

Until recently, this report was seen as a harbinger of inflation, and, thus, higher interest rates. But something different has been happening to the economy recently. We've witnessed dramatic increases in job growth with very low inflation and declining interest rates. Economists don't know how to read this report now that unemployment is low.

However, psychology plays a role in financial markets, so the mere perception of inflation can be enough to raise interest rates. If next month, for example, this report shows strong job growth, it might keep the Federal Reserve Board from lowering interest rates further. This, in turn would influence short- and intermediate-term interest rates.

The Consumer Price Index is the price of a basket of goods and services that consumers purchase. While the CPI has come under a lot of criticism lately for not accurately reporting inflation at the consumer level, it remains the best measure we have. Recently, for example, a study led by Michael Boskin, former chairman of the Council of Economic Advisors, found that the CPI overstated actual price inflation for consumers. As of January 1998, partially in response to the Boskin report, the weighting of the CPI "market basket" has changed. Even with the possible overstating of inflationary pressures, however, for 1997, the CPI came in at a mere 1.7 percent.

For the first time in recent memory, some analysts are even using the "D" word: Deflation. In particular, those who believe that the current CPI overstates consumer-level inflation are starting to say that we're actually witnessing deflation - the reduction in the prices of goods and services. For these analysts, the recent financial crisis in Asia nearly guarantees that inflation will not be a factor in the near term.

The Producer Price Index, the price of goods and services at the wholesale level, and the Gross Domestic Product, the total of what's produced in the economy, are also widely reported. The PPI generally is a predictor of what will happen at the consumer level in the future. For 1997, the PPI actually declined by 1.2 percent. This further suggests that inflation is not likely to be a problem, even with low unemployment.

The GDP is a harder indicator to read since some economists are beginning to believe that a number of fundamental relationships have changed in the economy. However, the recent turmoil in Asia has caused many economists and analysts to revise downward their estimates of economic activity. So beliefs of a runaway economy appear to be shelved for now.

Forecasters, as usual, are all over the map, with some predicting rising interest, while others have suggested that 30-year mortgage rates will go as low as 6 percent. John Liscio of The Liscio Report says, "Deflation is now officially on the Fed's radar screen and that means interest rates will continue to fall - probably with a vengeance."

But remember William Sherden's caution that these analysts' predictions have been shown in the past to be no more accurate than guessing. The prudent thing seems to be to arm yourself with the indicators listed above, particularly changes in the 10-year Treasury bond, so that you will know when the mortgage interest rate tide is turning.