Some selected their ARM in order to save cash during the first few years of the loan. The loans originally came with a teaser rate, meaning that the interest rate and the payment rate were set artificially low during the first few years.

Others chose the adjustable interest rate product because it was the only loan option which allowed them to qualify for their purchase at the time.

I suppose it's also possible that some borrowers selected an ARM over the past few years in hopes that rates might continue to decline, and that their ARM would allow them to ride the rates down without having to pay for a refinancing.

If you find yourself in this predicament, there is good news and bad news.

The bad news is that, unless you take action to replace your current loan, your payments will likely be going up – a lot.

For example, if you have a balance of about $250,000 on your home loan, and it adjusts from 4% to 6% in the next few months, you would see your monthly payment for principal and interest rise from about $1,193 to almost $1,500. In addition, charges for property tax and insurance have a way of increasing slightly from year to year as well.

Hopefully, you have been preparing for this all along, and the jump in monthly housing expense is within your budget.

The good news is that your home has probably gone up in value. And that means you may have more options than you imagine. Here are some strategic steps you may wish to consider as you approach a rate reset on your adjustable rate loan:

* First, you might refinance now with a new fixed rate loan. To some, this might seem a waste of time and energy because current fixed rates are roughly equal to the fully adjusted ARM reset rates of around 6%.

But the real advantage here is not that your payment declines. Instead, once refinanced, you can now budget for a fixed payment over the next three decades. Millions of homeowners have found this course to be both sensible and profitable, and it is the one that I recommend. There is substantial benefit to eliminating uncertainty in your financial life.

Does this mean I am suggesting that rates may continue to rise? Well, yes, that certainly is possible. But more importantly, a sound financial base requires a knowledge of both your income and your expenses, and only the fixed rate loan provides that peace of mind.

* Next, you might consider refinancing with a new 5 year Adjustable Rate Mortgage.

At first blush, this seems to provide no more stability than sticking with your currently adjusting loan, but there is a benefit here. By shifting now to a 5 year ARM, you move to a rate which is slightly lower than the current fixed rate, and you lock in your rate and payment amount for a full five year term.

This would be a good selection for someone who is reasonably sure that they will be selling or paying off their mortgage in five years or less. And even

though the first year savings are relatively small, by multiplying them over the five year term, they can become more worthwhile.

Unfortunately, this choice has two strikes against it. I have found that people's home ownership plans are notoriously unpredictable, and in five years the borrower is right back in the position you are today - facing a potential rate and payment increase.

* Another strategy you can use to lower your existing or projected payment is to refinance with whatever loan program you prefer, but extend the term of the loan as far out into the future as possible.

For example, if you were twelve years into a 30 year loan you originated in 1994, you could lower your payments substantially by refinancing your remaining balance and selecting a new 30 year period. In effect, you have extended your payback period for the remaining balance from 18 years to 30 years, thus lowering the monthly payment.

If cash to pay for the refinance is also a problem, most lenders will be happy to add those costs to the new loan balance, provided you have ample equity in your home. But if you have owned your home for that long and not added to your debt with a second mortgage, you should have seen a substantial gain in your home's equity.

* A final option you might consider if you are facing payment increases is to sell your home, hopefully for a nice profit, then find less expensive housing.

There are many "empty nesters" out there who occupy a very large house and have only two people living there. Does it really make sense for one couple to live in a four bedroom, three bath house?

It is simply a matter of personal preference and financial ability, but selling the old home place and moving to a smaller, more appropriately sized home or apartment might solve the monthly money drain.

And even though we are facing a softening market for home sales as we approach the fall, it is important to recognize that most homes are still selling at record prices, and a well-priced and attractive home will likely being offers in any market.

By selling now and pocketing the profit, you may be able to turn around your financial fortunes and still enjoy the place you call home.