How long to you intend to be in the house? You’ll be saving money on that lower interest rate only as long as you remain there. If you think you might be moving in a few years, the question becomes “Are the costs of the new loan going to neutralize my savings?” Once again, the prepayment issue comes into play, if you think you’ll be selling the house within five to seven years. You can no longer expect rapid acceleration of housing values to make these sorts of costs immaterial.

Fortunately, in today’s market loan origination costs are negotiable. The lenders need the business. If you are attempting to refinance an ARM into another ARM and think you’ll be moving within ten years, take advantage of one of the seven-year or ten-year ARMs so that you can close out your loan having maximized your interest savings.