Timing the market: Refi or keep ARM loan?

DEAR BENNY: I have a hybrid mortgage that is fixed for the first five years at 4.25 percent, and is tied to U.S. Treasury securities. The loan document notes that the index value is 2.1 and the margin is 2.75. The first "change date" on the loan is Nov. 1, 2009. My loan documents say on the first change date, my interest rate could be as high as 9.25 percent or as low as 2.75 percent, with no more than a 2 percent increase in any given year thereafter. Given the current fixed interest rates, is it advisable for me to refinance the loan now or continue to take advantage of the low rate I am paying for another year? What is the likelihood that the "index" could reach 6.5 percent in a year, raising my interest rate to 9.25 percent at the end of 2009? I would appreciate your response. --Belmont

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