With all this recent talk about hybrids it's no wonder refinance applications are up. People are seriously thinking about getting out of them and into fixed rate mortgages. Even though their adjustment period won't take place for another couple of years. What gives?

I have two good Realtor clients who have me on short leash that if the 30 year fixed conforming rate gets to 5.50 percent then they want me to refinance them out of their hybrid and into a fixed. Interestingly enough, they both have the same hybrid, a 5/1 conforming ARM at 5.50 percent.

I also got a call from a friend who lives down the street from me who asked, "David, I've got a hybrid that's not coming due for another eighteen months or so. It's pretty good right now at 4.50 percent, but I'm afraid what rates might be like from now on out. Should I lock in today's rates?"

And in the past two weeks, two other people have called me about the exact same scenario asking for my advice.

My response? "Yes, refinance." I just don't know when. It's a tough call.

A 30 year fixed rate of 5.875 percent on $400,000 is $2,354, whereas a 4.50 percent hybrid payment would be $2,019. That's a big difference. It makes it hard to decide when to pull the trigger when you're increasing your payment by more than $300 per month.

Closer though are the two Realtors who have the 5.50 percent rate. That payment is right at $2,260, a narrower gap.

But it's easy to wait and do nothing. After all, why mess with a good thing? Because these people know, and millions of others, that one day their rate will change and their payments will go up.

And they could have locked today's rates.

How high will these payments go? Most hybrids issued two and three years ago had either a 1 year Treasury index or the LIBOR index and most hybrids came with 2.75 percent margins.

If you had a hybrid and it adjusted today, it would go to 7.68 percent with a 1 year Treasury index and 8.11 percent with the LIBOR index. Monthly payments would be $2,828 and $2,945 respectively. Much higher than 30 year fixed rates at 5.875 percent.

So what do you do? Do you wait? What if rates begin rising next week and don't look back? After all, we're already .25 percent higher in rate today than we were at the first of the year.

Is inflation finally taking hold? Will the Fed have to raise rates to hold down the cost of funds to thwart any hint of inflation? Recent PPI and CPI data reflect significantly higher prices but if you take out food and energy price increases from those numbers then inflation is still relatively tame.

But how long will that last? We've been hovering around $60 for a barrel of oil for a long time now yet we seem to be doing okay. At some point though, one has to wonder just how long we can hold off the prices of other goods that aren't food and energy.

If it costs more to fill up a truck that delivers oranges to your grocery store, do you think soon the prices of those oranges will have to go up, too? And tomatoes and bananas and coffee? For that matter, what about anything that is transported, doesn't it now cost more to get stuff from here to there?

Furniture? Airplane glue? Fake rubber chickens?

At some point one would have to think that prices will be on the rise at both the wholesale and retail levels and the Fed is keeping a very close eye on that.

Now, however, we're in the clear. We're safe. Mortgage rates are relatively stable with no clear indications of which the way the Fed might move rates … if at all.

My advice to those with hybrids?

First, assume that whichever decision you make will be the wrong decision. Second, which way would you rather be wrong?

Would you rather be wrong in locking good rates now and rates don't go up after all?

Or would you rather be wrong in not locking in good rates now and rates continue to move up?

I thought so. But there is another idea here. There's nothing that says you can only refinance once. If you refinance today at 5.875 percent and rates drop to 5.25 percent you can always refinance all over again. If this might be a palpable strategy for you, make certain you keep your closing costs as low as possible meaning pay no points, no origination charges, get a good deal on your appraisal and so on.

There really is no right answer, only speculation and it might be more of a personality trait than anything else. It's simply not cut and dried.

My friend down the street with the 4.50 percent rate? He's refinancing now. My Realtor friends with 5.50 percent? They're holding off.

It's really a matter of what makes you sleep (or what keeps you awake) at night. And I can't answer that for you.