A steady decline in mortgage rates to two-year lows has current homeowners rushing to take advantage of potential savings.

Applications to refinance a home loan surged 20% last week compared with the previous week، according to the Mortgage Bankers Association’s seasonally adjusted index. Demand was a stunning 175% higher than the same week one year ago.

This as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766،550 or less) decreased to 6.13% from 6.15%، with points increasing to 0.57 from 0.56 (including the origination fee) for loans with a 20% down payment. The rate was 128 basis points higher the same week one year ago، or 7.41%.

“The 30-year fixed rate decreased for the eighth straight week to 6.13%، while the FHA rate decreased to 5.99%، breaking the psychologically important 6% level،” said Joel Kan، vice president and deputy chief economist at the MBA، in a release. “As a result of lower rates، week-over-week gains for both conventional and government refinance applications increased sharply.”

Total mortgage demand

The refinance share of applications rose to 55.7%. While the jump compared with a year ago is large and the share is now a majority of total mortgage demand، the level of refinance activity is still modest compared with prior refi waves، according to Kan.

Part of that is the seasonal slowdown in homebuying. Mortgage applications to purchase a home rose just 1% for the week and were 2% higher than the same week one year ago. Buyers are still facing high home prices and limited supply of houses for sale.

“Average loan sizes were higher both for purchase and refinance applications، which pushed the overall average loan size to its highest in the survey’s history at $413،100،” Kan added.

Mortgage rates haven’t moved much to start this week، and will likely wait for more pressing economic data later in the week and at the start of October.