Outsmart rising mortgage rates

NEW YORK (CNNMoney.com) -- Mortgage rates jumped to the highest level in nearly a year, according to Freddie Mac. So if you have an adjustable-rate mortgage - or you're just worried about making those monthly payments - we'll tell you what to do now.

34 percent of homeowners don't know what kind of mortgage they have, and with interest rates going higher, that's a costly error. If you have a traditional ARM, or 1-, 3-, or 5-year hybrid ARM, your monthly statement will not tell you your caps or any other terms of your loan. The only way to figure that out is to look at your adjustable rate rider. This should be included with your original closing papers.

Once you get this paper in hand, the first thing you need to look for is when your rate lock expires or when your interest rate will reset. There are some adjustable rates that adjust monthly, others adjust on an annual basis. There is no law that says there has to be a set number of resets. Look at your caps - caps prohibit your interest rates from moving too much in either direction in a given time frame.

Usually there is a 5 percent cap on the first adjustment, which is the biggest. Generally caps are 2 percent a year after that. Keep in mind, there's also a lifetime cap that is generally 5 to 6 percentage points above the original rate.

Refinancing may be for you if you plan on staying in your home for at least 2 more years.

If real estate prices are falling fast in your area, refinance sooner rather than later. Assuming you put down a 10 percent down payment, if real estate goes down 5 percent, that's going to hurt your equity. These days you'll need 10 to 20 percent equity in your home to refinance. And - we can't say this enough - shop around for a lender. Your original lender may not have the best rates anymore.

If you think you're going to be late making a mortgage payment, pick up the phone and call your lender. Banks will be more forgiving today when it comes to negotiating payments. Make sure you ask for the loss mitigation department. These are the folks who will try to work out a payment plan.

When you do negotiate, you can ask for forbearance. This is a plea to suspend your payments for a small amount of time, or to temporarily reduce your payments for a while. You can also ask to modify your mortgage. This allows you to change the terms of your mortgage, so you may be able to make lower monthly payments. You don't just want to walk away from the house.

Having a foreclosure on your credit record can in short, destroy your ability to get credit in the future. It could stay on your record for about 7 years and your credit score could potentially drop hundreds of points.

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