I currently have a 417K mortgage on a house appraised at 815, have great credit.  I am in a 5 year arm, that adjusted for the first time in 12/08.  I am currently at 5.25% rate.  The rate is LIBOR plus 2.25%.  Capped at no more than 2% increase year over year and never higher than 9.75%.  LIBOR rates are forecasted to go down by the end of the year...however, I would assume over time they could go up.  Several weeks ago I submitted an app for a refi and got quoted a rate of 4.5% which I jumped at, but the bank advised me not to lock down and said I could not close until the end of June...in the meantime 30 year fixed rates have been increased.  I am thinking about locking today at 5.625....is this a good idea.  I plan on staying in the house for another 10 year and am risk averse.

There are three things that got my attention here: First, you have been resetting and your rate is at 5.25% (not the under 4% that some others are enjoying these days. So the spread between what you are paying on your ARM versus what you would be moving into to fix your loan is relatively small. Your aversion to risk and the fact that you plan at least a ten year tenure in the property would make me lean towards advising that you lock it and get some sleep.

However, have you considered that 5/1 hybrids are still near 4%? I'd check into them as well, run the numbers through a mortgage calculator, look at the history of whatever index is tied to the ARMs you are offered, and pencil out a best case, worst case, and most likely case scenario. Consider also the effect of using that 5 year, 4% period as an opportunity to continue making the higher payment you are accustomed to and paying your balance down faster. Then, even if your rate resets upward you may still find yourself ahead of the game.