Do We Refinance Now...or Wait?

Many of my clients are taking advantage of the low mortgage rates to refinance their loans. But if they have an adjustable-rate mortgage, which carries a fixed interest rate for a certain number of years and then resets annually to rates tied to market benchmarks, they have a problem. Many of the loans are at new levels that are even lower than their initial fixed rates, because yields on benchmarks, such as the one-year Treasury bond, have fallen to their lowest levels in decades.
So the question is...Should they refinance to lock in a good rate for the long term or keep their ARM's current rate that's even lower right now, but could rise sharply once the economy picks up?
Some brokers say borrowers should consider refinancing out of an ARM if they plan to live in a home more than two years. If increased government spending leads to runaway inflation in future years, that could drive up rates.
Adjustable-rate mortgages have been blamed for contributing to the subprime meltdown that helped spark the current housing crisis.
But many of the ARMs that are now resetting were made to prime borrowers, those with good credit, who had made down payments on their homes. Over the next two years, some 1.5 million prime adjustable-rate loans are expected to reset, according to First American CoreLogic, a research firm.
Deciding whether to refinance can be especially difficult for prime borrowers holding jumbo loans. Many lenders are making fewer jumbo mortgages, and requiring large down payments, of 20% to 40% or more, and high credit scores, and nearly half of all jumbo mortgages outstanding today are adjustable-rate loans.