To some extent it depends how large this loan is relative to your other assets. If you have a net worth of 2x or 3x this loan amount AND the maximum payment on this loan at 8.375% is less than 25 -30% of your income, then the risk of keeping the ARM is small.
Otherwise, figure out what the ARM rate would reset to such that your savings from going to a fixed rate is paid for over 5 years.
I’m gonna make a quickly stab at this:
Suppose it costs 4000 to refi (2850 in points, another 1150 in appraisal, title and other fees)
Your fixed rate payment would be : 1005.
TO pay for the 4000 over 4 years, you would need to save about $83 per month. That corrwesponds to an ARM rate at about 5.625%.
To come out ahead on a refinance over the next 4 years the ARM would have to average more than 5.625%. That’s 1.5% above today’s level, which is likely.
