Every dollar counts in this economy.

Homeowners hustled last week to refinance their mortgages after interest rates fell below 5 percent for the first time since May.

Refinance applications climbed 18 percent from the previous week, the Mortgage Bankers Association reported Wednesday, as rates on 30-year home loans dropped to their lowest level in four months to 4.89 percent.

With extra cash lining their pockets each month, homeowners could help the economy recover. Since the recession began, American consumers have reined in spending, which accounts for up to 70 percent of the economy. A refinance savings of a couple hundred bucks could go a long way in boosting household finances.

``A lot of people are thinking: `If I can get something right now, let's get it and run,' '' said Pava Leyrer, president of Heritage National Mortgage in Michigan.

But more than 16 million homeowners owe more on their mortgages than their properties are worth. To refinance, they would have to cover the difference and then some. In some cases, that could mean forking over tens of thousands of dollars. Others simply don't qualify under stricter credit and income standards. And requirements for refinancing certain government loans will get tougher in November.

The Federal Reserve started buying mortgage-backed securities in January to drive down mortgage rates. But it plans to slow its purchases of mortgage-related debt and extend the program through the first three months of 2010, which will likely push rates higher.

REAL-WORLD EFFECT

Still, current low rates helped borrowers like Kimberly Austin in Kalamazoo, Mich., cut her monthly payment by more than $300 to $934. Austin, a 40-year-old accounts receivable clerk, ticked off a list of where that extra cash will go. A new roof, updating the electrical system and other improvements on the older house she bought in June of last year.

``That money would be a huge help,'' said Austin, who is set to complete the refinance on Thursday.

For Tanya Schlicht in Greenfield, Wisc., refinancing her mortgage will help cushion the blow from her husband's job loss earlier this year. He's working at a temp agency now, but makes less than before.

Schlicht, who works in a nursing home, is in the process of qualifying with just her income and wants to roll a costly second mortgage into just one loan. The move will save them a much-needed $200 a month.

``We're going to need it for the electric bill,'' she said.

She's a lucky one.

Many calls that mortgage brokers received last week came from borrowers who couldn't qualify for a new loan because of lower incomes, higher credit standards or falling home prices.

STRICT NEW LIMITS

New rules designed to limit conflicts of interest in the appraisal industry also are scuttling refinance applications because appraisals are coming in low, said Les Berman of EB Financial in Beverly Hills, Calif.

Lenders are stricter too. Before, Berman said they would accept a refinance application if the mortgage payment, taxes, insurance and all other debt added up to half a borrower's income. Now, the magic number is 41 percent.

The Obama Administration launched a plan in April to help borrowers refinance, even if their home has lost value. Fannie Mae and Freddie Mac are accepting borrowers who owe up to 25 percent more than their homes are worth. But so far, only about 85,000 homeowners have had their loans refinanced under the plan, well below original expectations of 5 million.

``I personally haven't seen one yet,'' Berman said.

And on Nov. 18, new requirements go into effect for borrowers who want to refinance a loan insured by the Federal Housing Administration. The so-called ``FHA streamline'' loan will require at least six months of payments before a borrower can take advantage, and verification of assets, job and income. Also, more borrowers will need to come up with more cash because of new rules to calculate the maximum loan amount relative to the home's value.

``That'll stop up to 85 percent of my streamline borrowers,'' said Leyrer of Heritage National Mortgage.

THE GETTING'S GOOD

Mortgage brokers say a refinancing is worthwhile if you can shave off at least $100 from your monthly payment or get a full percentage-point rate reduction.

It's only the second time this year they dipped that low. Rates hit 4.78 percent in the spring.

``The experts say rates are going back up,'' said John Stearns, vice president at Robbins and Lloyd Mortgage in Mequon, Wis. ``We're making hay while we can now.''