With a refi to 3.25% 30-year, your monthly payment would decrease by $280/month? Plus you'd lose whatever monthly PMI payment? If so, that's a savings of ~$3400/year (not including whatever you save with PMI). If that's the case, refinancing seems like a no-brainer to me.
I don't that's quite a fair comparison, because it ignores that the payments continue on for an additional 4 years beyond the current 26 years remaining. Plus, we need to keep in mind that the OP might move sooner or later, and if it's sooner, paying a fixed cost up front for lower future payments looks like less and less of a good deal.
The back-of-the-envelope way I used to decide to refinance my own mortgage was to take my current balance and multiply by the difference in interest rates since the terms were similar - then I checked that savings against the fixed refi costs. So if you owed 300,000 and were considering a refi that would slash your rate by .5%, you'd get $1500 interest savings the first year. (This ignores the slight effect of the monthly paydowns). In addition, you'd also get 12x your monthly PMI saved in your case. Now you've got a ballpark estimate of how much savings you'll have in year one. How does that compare to the fixed, one-time costs of the refi (3k in this case)?
Somewhere along the line, PMI would go away with your current mortgage and you should get clarity on when that would be before you make any decisions.
My guess is the 30 year refi looks pretty decent compared to your present situation (especially when getting rid of PMI). The choice between 15 and 30 year term is a whole 'nuther question and can of worms.
Lending said resetting means I would just be losing the $69K I already paid it. (don't really believe that because it goes to principal and interest is gone regardless)
Your lender is an idiot and your suspicion is merited. I guess the person is trying to say that most of what you paid so far went to interest and not principal so far (but that's just how amortization works.) I would probably not work with someone like that on such an important transaction.