ACORN Housing, as well as other counseling agencies approved by the U.S. Department of Housing and Urban Development, works with some of the largest U.S. mortgage lenders to help troubled borrowers with low and moderate incomes avoid foreclosure.

"A number of lenders are waiving prepayment penalties," says Trujillo. "It doesn't hurt to talk to the lender and ask them to waive it." However, prepare yourself to be told that your mortgage has been sold to investors (which happens frequently), and that a waiver could only be granted with the OK of the investor.

Trujillo says lenders may be willing to work with borrowers to help avoid delinquent payments and foreclosures. The key is to get the process moving before you fall behind on payments. "If borrowers are on time with the loan they should pick up the phone and see if the lender can help them," she says, adding that to avert foreclosures, some lenders have approved interest-rate reductions without requiring the owner to refinance.

Choose lender carefully
Of course, borrowers trying to escape difficult loans before their payment adjusts to an even higher rate need to be careful that a refinance would truly offer more than temporary respite. Even if you had subprime credit before, don't assume that's all you can qualify for now. There's no need to start your search with lenders (or mortgage brokers) that target credit-challenged borrowers; start with mainstream lenders and see what they can offer you.

"Not all brokers are bad, but most of the abuses we've seen are from brokers," says Trujillo. "People have to be careful who they work with!"

Weigh all costs
Anyone wishing to refinance needs to take into account all the costs involved with getting a new mortgage. Even if a loan is billed as a "no-cost" refinance that really means that the transaction expenses have been rolled into either the new interest rate or into your new loan balance. Refinance expenses usually include appraisal fees, document processing expenses, and fees for a new title search and title insurance. You may be able to snag a cheaper "re-issue" rate on the title insurance if you go with the same company that did the title work just a couple of years ago. Be sure to ask for it.

Keep in mind that with a refinance, any upfront mortgage-interest points you pay cannot be deducted from your taxable income in the year of the refinance. With a refinance, the deductions for points paid must be spread out over the life of the loan.