We all seek a safe haven when the storms come, and those with adjustable rate loans (ARMs) have recently experienced mortgage rate turbulence. In times of declining interest rates, an ARM is a smart bet. A predictable fixed rate is a welcome anchor when market forces change and adjustable rates soar.

Understanding ARMs

Most ARMs offer introductory "teaser" rates. This helped make them wildly popular during the past five years. In fact, more than 30 percent of all mortgages taken out in 2005 were ARMs. But over the past 18 months, those dirt-cheap discounts evaporated. Continuous rate hikes by the Federal Reserve Board hit those who hold ARMs, and many have seen their monthly payments rise significantly.

Jared Bernstein, senior economist at the Economic Policy Institute in Washington, D.C., told the San Francisco Chronicle earlier this year that, "A lot of the ARMs are starting to adjust. When those terms end and they need to be reset, mortgage rates are going to be a percent or two higher. You're talking about a few hundred dollars per month and as much as $1,000 or $2,000 more per year. That is going to pinch."

Mortgage refinance to the rescue

One way to avoid the negative impact of this trend is to refinance your mortgage. By switching from an adjustable-rate mortgage to a fixed-rate loan, your rate-and your monthly mortgage payments-will remain stable, no matter how high rates climb. In addition, by doing a mortgage refinance now, while rates are still attractive, you can save tens of thousands of dollars during the life of your loan.

To calculate how long it will take to break even on the cost of refinancing your loan, calculate the monthly savings, and then divide your closing costs by that amount. For example, if you can save $120 per month by switching to a fixed-rate loan and your total refinance fees are $1,200, the change will pay for itself in only 10 months.

Adjustable-rate mortgages may still be heading for stormy weather. But by refinancing your mortgage, you can find a place on the sunny side of the mortgage forecast.