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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."

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.

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