That is an excellent, yet complex question to be asking as mortgage rates become very attractive. The answer(s) lie within yourselves, after you acquire and analyse the gamet of information necessary for making a prudent decision. Some thoughts to consider:
1) How much risk are you willing to take at this juncture in your lives?
2) Do you have experience and the financial reserves necessary to become a landlord?
3) Low Risk: If you refi- with the extra cash, at say, 4.75% for 15/30 years, you could cruise into retirement with your home paid off. You pretty much won't be affected by the ups and downs in real estate, but you will end up with all your equity in your home. Do you have a retirement plan(s) that will enable you to live the lifestyle you plan for during your working years?
4) High Risk: Keep the Jumbo Loan and buy an investment property. The problem with doing this, in my opinion, is that you may end up losing your down payment should the market continue to decline.
5) I would ask: Where are you planning to buy this "cash flowing" real estate? It's still difficult to identify a suitable investment property in Ventura County. Remember, too, that if your current home does not have at least 90% loan-to-value, the new lender may not provice financing.
6) In the event the local market does rebound in 3-5 years (and my opinion is that it won't hit bottom until 2012), will you plan to sell your investment property? Uncle Sam (IRS) will tax you on your capital gains, unless you do a 1031 Exchange and defer the taxes. My wife and I have owned up to 5 rentals and plan to "swap 'til we drop" to avoid the 35%+ capital gains hit.
7) Worse case scenario: You lose your job after buying the rental. Your tenant flakes out on you and you can't pay two mortgages. This is an all too frequent scenario in an uncertain world. Pretty scary, huh?
8) My advice: Pay down your your loan to create extra cash-flow every month. Save that extra cash and be ready to invest it after 2012. Put yourself in the most favorable and least risky position as an investor.
Leveraged Real estate investing is an exciting way to create income streams when done properly. Your next stop should be to your local library or book store. Education won't cost you your life savings. Investing blindly will. Good luck with your decisions!!!