Let’s face it. Using the term “economic mess” without adding “Uncle Sam” is like touting great gorilla movies without mentioning King Kong.

But Henry Paulsen may be on to something with the Treasury’s proposed plan to lower mortgage rates -- a move that could make refinancing a good deal for homeowners, regardless of your financial straits.

Here’s the deal. The Federal Reserve and the U.S. Treasury announced a plan in late November to purchase $600 billion of mortgage debt backed by Freddie Mac (FRE) and Fannie Mae (FNM). Since then, 30-year fixed mortgage rates fell from 6.07% to 5.47%, according to the Mortgage Bankers Association. Rates could go even lower. Maybe even to 4.5%.

That’s real money. Most homeowners don’t care about LIBOR rates and yield spreads, but they do get financial physics – when interest rates go down refinancing rates usually go up. The MBA’s refinancing index tripled in the last week alone, the largest increase in the index’s 18-year history.

But is refinancing right for you? It might be, but there are caveats. Let’s have a look.

Should you refinance? Only if you can save money on your mortgage, and if you plan on staying in your home. Example: If you hold a $300,000 30-year fixed mortgage, you could save $389 per month (not counting refinancing costs) by lowering your interest rate from 6.07% to 5.47%. But it will take you about 19 months to recoup the cost of refinancing. So if you plan on selling soon, the math may not add up – the cost of refinancing in the above scenario is around $7,500.

I just bought a house and I have a rate slightly north of that. I will refinance for certain if rates get to these low levels because I’m not going anywhere for years! To do your own scenarios click here for Bankingmyway’s mortgage refinance calculator.

What lenders want: If you refinance, your options rise if you have a great credit score (700-and-above); a good chunk of equity in your home, and proof of income (i.e., a job). Absent any of the three, you can still strike a deal, but it may not be the one you bargained for.

Refinancing tips: To make a refinance deal work for you, keep these steps in mind  . . .

•    Set goals – Use a good mortgage calculator and find out exactly what you can save by refinancing.

•    Credit check – Know your credit rating. Get a free credit report. The higher your score, the better the deal (and vice-versa).

•    Check prepayment penalties – Your existing mortgage may have a penalty for early repayment. Find out how much by talking to your lender. Prepayment penalties won’t kill your deal, but know the number going in.

•    Shop around – Interest rates vary, so if you don’t like one lender’s quote, take a walk. Chances are there’s a better deal down the road.

•    Point guard – Lenders should back up their deals. Get yours to come clean with any points, closing costs, and other fees. Also, lock in a good rate when you see one. There’s no rule that says a good bargain will stay on the table indefinitely.

In the end, ask yourself one question: does the deal make sense? If so, strike while the iron is hot. Low rates may not hang around forever.