Your first priority should be to know when and how much your adjustable-rate mortgage will change if and when a reset occurs. This one fact will help you determine whether or not you refinance your mortgage during 2008. A reset, by definition, means that the rate on an adjustable-rate mortgage goes through at least one adjustment. Those adjustments are called resets. In recent years, the most common kinds of adjustables have been 3/1 and 5/1 ARMs.

The section in your loan contract that discloses the rate’s change date should offer an explanation of how the lender will calculate the new rate. The ARM’s rate will be based on an index and a margin. The index is an independent interest rate that is widely known — the yield on the one-year Treasury note, for example, or the six-month London Interbank Offered Rate (LIBOR).

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