Your new house mortgage will probably not cost that much more, given that you should be able to lower your interest rate to around 4%. I'm going to take a stand from what I'm fairly certain will be the minority side of the chorus and say if it's really as good a deal as you think, GO FOR IT!
If you want to stay at home with your babies, sell the first house. Try working with a local lender who will get creative (80/10?) or let you pay down the balance once the first house sells to avoid PMI. Or consider a short-term loan from a family member to bridge the gap. Worst case, consider PMI a tool for building wealth and don't worry too much about it.
Otherwise, keep it. Proximity is a huge plus for a rental. Keeping it might allow you to move back into it once your kids have grown. Then you cam rent or sell the bigger house, depending on your needs.
Finally, listen to your gut, and don't be afraid. Please let us know what you decide!