Forclosre or Short Sales?

I have owned a condo for 2 years. I have made no late payment on my mortgage loan. But my loan will turn into variable interest in about 2 months. I believe it will be in the
9 + interest rate against what i pay for at 7.25 percent right now. My property was 305 k when I bought it, but it is worth about 275 K now. With the depreciation in value and the hike in interest rate, I think i can no longer afford to pay for my mortgage. I have consulted to a couple loan officers about refiancing my loan. But I wouldn’t be able to do so unless i bring in about 30 K +. I AM THIKING ABOUT FORCLOSURE OR SHORT SALES. Please tell me which is the good way for me to solve this mess. Any advice if appreciate it.

I have an interest only mortgage that is set to adjust this October on 80% of the mortgage amount (currently at 6.75%). The other 20% is a regular piggyback loan at 10.25% for 30 yrs.
Basically the house was purchased with 100% financing.
Total loan amount was $ 282k. Now around $ 280k.
In my opinion the house is worth around $ 230-240k. My total payments are (interest and principal) $ 1,700.
I have about $ 20-25k in savings.
What is the best thing to do in my situation?
Refiancing is a very expensive thing to do for me right now. With at least 10% (some banks want 20%) down I can only get around $ 200-210k loan and I owe $ 70k more with only $ 20-25k savings.

Thanks for your inputs.

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