REFINANCING FHA TO ARM*

[Matt N.]

Hey All - I have been shopping around with lenders and wanted to get some others' opinions on this. 

I have a duplex with an FHA loan (around 5% equity right now). I've lived there for about 9 months. My goal is to purchase another property to live and I found a lender who will finance total costs at 5% if it is owner occupied (so would not have to get another FHA). But I could not do this unless I refinanced my current property.

The lender has recommended to me to refinance the FHA to an ARM that has a locked rate for 10 years (interest rate is around 4.4%). The interest rate will then fluctuate after 10 years based on the economy BUT it is capped at 2% rise per year. The only requirement is that I have 5% equity in the property. I was thinking I would refinance to the ARM, get rid of the mortgage insurance with FHA on this loan, then be able to purchase another property slightly bigger (duplex) to live in for 5% down with her program (and sell my current property within 10 years so I don't get hit with any inflation interest rates). I was curious if anyone had any opinions on this or things to ask the lender so I do not screw myself.

THANKS!