Okay, if I read this correctly, you are saying that over the next few years, your expenses will be higher and you'd like to reduce your mortgage payment to increase your cash flow. You indicated that you don't expect to own the home for more than five years and that your current mortgage is 4.5 percent with an $81,000 balance and a $1,166 principal and interest payment. It also looks as though your mortgage is very close to being paid off and so I assume that you have a lot of home equity.
Right now, the average rate for a 7 year ARM is pretty close to what you are already paying. The reduction in payment is mostly due to stretching out your repayment over a new 30-year term. But at 4.25 percent, your payment would drop about $700 a month. In the long run, borrowing this way increases your costs, but if you are looking for breathing room for a few years, the 7/1 ARM does provide it. You may even want to pull some extra cash out for some of these extra costs as long as you're refinancing if the $700 a month savings does not provide enough security for you.
Thank you for writing, and good luck.