The answer depends on how long you plan to own the property. Have the lender do your "life of loan costs" in two scenarios.
One scenario would be if you took their higher interest-rate with no PMI, and have them figure out how much that would cost you over your estimated time that you may own the property.
The other scenario would be if you kept your current interest-rate and did a "PMI drop" and got rid of the mortgage insurance by calling your loan servicer and asking if you are eligible to drop the PMI on your own without a refinance. They may do that now, they may do that a year from now, or they may do it in three years. But at some point you will likely drop the PMI without having to refinance. So if you can estimate when you think you may drop the PMI without refinancing, then do the same "life of loan costs" on how much your payment will be with the PMI for the next year or two until you can drop the PMI, and then how much your monthly payment will be with the current interest-rate and no PMI for the rest of the estimated time that you will own the property.