by Jason Alderman. America's once red-hot housing market is now shuddering in a big chill. Prices are down, unsold housing inventory is up and mortgage lenders have tightened credit standards.

What's worse, many borrowers who opted for adjustable rate mortgages (ARMs) are in for a big shock when millions of ARMs adjust to new, higher interest rates in the next few years. In a stronger market, these borrowers could simply refinance, using built-up home equity to qualify for lower, fixed-rate mortgages. Unfortunately, many now find themselves "upside down," owing more than their home's current value.

If you're in this situation, here are a few steps to consider before falling behind in your payments:

Read your loan documents

Look for terms that can make your interest rate rise or fall, such as:

-When the initial rate period ends, and when your rate is likely to start increasing.

-The periodic rate cap: the most your interest rate can increase or decrease whenever your rate is readjusted - often annually.

-The lifetime rate cap: the highest possible rate during your loan's life.

-The index your rate is tied to. Some indices are more volatile, moving up and down more quickly.

-If a balloon payment is ever owed.

-Prepayment penalties, in case you're able to refinance.

Rein in spending

Your monthly payment could suddenly go up hundreds of dollars, so if you're already struggling, cut expenses now. If you don't already operate on a budget, create one. Practical Money Skills for Life, a free personal financial management site (www.practicalmoneyskills.com/budgeting) sponsored by Visa USA, suggests numerous budgeting tools that can help.

Communicate with your lender

Well before your ARM readjusts, talk to your current lender - and shop around for a fixed-rate mortgage. With thousands of borrowers defaulting, lenders are more likely to negotiate if it means you'll remain a solvent, paying customer. If you're in danger of missing payments or already have, contact your lender immediately and respond to all inquiries. It's better to work out a solution together than let your options expire. Alternatives might include:

-Repayment plan. Talk to the loss mitigations department about how you might catch up. They'll likely want at least partial payment initially and your agreement to pay on time thereafter.

-Forbearance. Lenders sometimes allow suspended payments for a few months, especially for disaster victims, or after job loss or family emergency. After the forbearance period ends, expect to pay extra each month until caught up.

-Loan modification, in which lenders agree to modify loan terms with few or no fees. They might reduce the interest rate, convert to a fixed-rate mortgage, or possibly tack missed payments onto the end of the loan.

-Short sale. Sometimes lenders allow owners to sell their homes for less than owed and write off the difference. The owner walks away with nothing except severely damaged credit.

-Foreclosure. The lender takes possession of your house, you are evicted and your credit is severely damaged for at least seven years. Avoid foreclosure at all costs. The Federal Housing Administration offers comprehensive advice on avoiding foreclosure, including links to local housing counseling services, at www.fha.gov/foreclosure/index.cfm.

Talk to an attorney, financial advisor or housing counseling agency before taking any action, and never make a payment to anyone other than your lender. Sadly, there are people who will take advantage of your bad circumstances.