If you are only staying 2 years, I'm not sure I'd bother. The time you own the home is the biggest factor. The longer you stay the more it makes sense to refinance. Basically you need to figure out your savings per year with the rate reduction and pmi and subtract out the opportunity cost of locking up that $33k down payment and the closing costs. I doubt it matters much if you only stay 2 years and move.

In regards to renting. Based on a simple 1% rule, would you really be able to rent the place for $3,800-$4,000 a month (or are you betting on appreciation)? If you don't sell it, will you have enough of a down payment for the next home and not have to pay PMI all over again?

Here is what we were planning to do, feel free to tell me if I wrong in any assumptions, We are new to this home ownership/renting out:

Option 1: No refinance

Stay for 2 years

Rent it out after 2 years for $2500 (might be a little more after 2 yrs) which would cover PITI + HOA

Option 2: Refinance with $33k + $2k fees as Primary residence

Stay for 2 years (I assume it can rented out after 2 years even though we refinanced as Primary residence)

Rent it out after 2 years for $2500 which would cover PITI + HOA and will have a positive income of approx $350 pm

Here are some more details:

1) Current monthly payment is $2520 (Principal + Interest + Taxes + HOA)

2) If we refinance with $33k down payment + $2k fees, Our monthly payment would be $2146 (PITI + HOA)

3) Rent market value of current home is $2500 as of today based on some units that were rented in our community

4) We have to move in 2 yrs as our toddler will start elementary and current city has below avg schools

5) We will have enough to put down payment on new home after 2 yrs without PMI.