That makes sense. I was wondering how in the world your rate would go to 7% on an ARM.
If you still want that single family home you mentioned you have to hang onto this house.
With the lower mortgage you may be able to rent it out at break even on monthly cash flow.
Move into an rental for yourself for 6 - 12 months and get a renter into the home you own.
Once that is established you can go buy the home you want if you are willing to stay there for a good while. Or wait until you are ready. You will own two homes.
As your renter pays down your mortgage and values rise (or not) you will gain equity in the investment home as well as your owner occupied home.
Sell it when you're ready or keep it long term for a bigger gain.