With mortgage rates near record lows and the economy mired in a serious recession, there has never been a better or more urgent time to refinance a home.

Reducing your payments as much as possible will allow you to save money now, and save your home from foreclosure if you're laid off a few months from now.

You'll have to be patient.

Everyone is rushing to refinance, and lenders are overwhelmed with inquiries and applications. Don't be shocked it if takes a couple of days, or even a couple of weeks, to get a phone call returned.

But our 5 smart moves can help you make the most of this opportunity.

Smart move 1. No equity? No problem.

Most lenders won't refinance your mortgage unless you have 20% equity in your home -- a tough criteria to meet if you live in an area where property values have fallen 20% or more.

(To calculate your equity percentage: Subtract the balance on your existing mortgage from your home's current value and divide the difference by the current value.)

But you can overcome that deficiency by qualifying for one of the federal government's two big loan programs.

You'll only need 5% equity if you can qualify for an FHA loan and no equity at all if you can qualify for a VA loan.

Those programs also help borrowers with too much debt, or a credit score that's too low, to qualify for conventional loans.

Take full advantage of them.

Smart move 2. Shop around for the best deal.

For most borrowers, that's the lowest interest rate you can find on a 30-year, fixed-rate loan without having to pay points or more than $1,000 in fees.

(Fixed-rate loans are so cheap, there's no reason to even consider an adjustable-rate mortgage.)

The best place to start is the Internet. Our extensive database of mortgage rates, for example, allows you to compare loans being offered by dozens of lenders in your area.

Then ask friends and family members who've just refinanced about the bank or mortgage company they used. And don't ignore local credit unions. They often charge less than commercial banks.

To locate one near you, go to findacreditunion.com and then check their mortgage rates.

Smart move 3. Refinance anytime you can lower your mortgage rate by a percentage point or more.

This is a good rule of thumb to follow when deciding whether you've found a worthwhile deal.

Reduce your interest rate by 1 percentage point and you'll reduce your monthly payments by $65 a month for every $100,000 you borrow.

Our refinancing calculator can help you evaluate any offer more precisely.

It will calculate exactly how much your payment will decrease and how long it will take to recoup any fees and closing costs. A year or less is ideal. Two years or more is too long, and indicates the fees are too high for the interest rate you're being offered.

Smart move 4. Don't do a cash-out refinancing.

The goal of refinancing in a bad economy should be to lower your monthly payments as much as possible, so that you can keep writing those mortgage checks even if your pay is cut or you get laid off.

That means you want to borrow as little as you can, which is usually the amount you need to repay your existing mortgage.

In good times, it can make a lot of sense to borrow an extra $20,000 or $30,000 with a low-cost mortgage and use that money to repay credit card bills or other high-cost debt.

But not right now. With 2 million families a year losing their homes to foreclosure, you've got to focus on getting a payment you can make, no matter what.

Smart move 5. Bank the savings every month -- no cheating!

Too many families are losing their homes because they have little or no savings to ride out an illness or job loss that suddenly reduces their income.

The worst recession since World War II is no time to be living paycheck-to-paycheck. If you're laid off this year, you might not find another job until 2010.

It's critical to use the money you're saving with your new mortgage to build a bigger, better rainy-day fund.

The best place to put it is a Roth IRA, a type of retirement account that allows your savings to grow tax-free, but lets you withdraw your contributions anytime you need the money without penalty.

If you can't qualify for a Roth IRA, then a savings or money market account will work as well.

Last year, we would have encouraged you to reduce the balance on your credit cards. But having enough cash to pay the mortgage during a prolonged period of unemployment is more important this year.

By Carolyn Siegel

Interest.com Associate Editor