The lowest mortgage interest rates in more than a half century have kindled a rise in refinancing activity among homeowners looking to reduce their debt and lower monthly payments.

The Mortgage Bankers Association (MBA) reported Wednesday that its index reading for refinance applications jumped 17.1 percent for the week ending August 13. The refinance index hit its highest level since May of last year, according to MBA, while the refinance share of mortgage activity increased to 81.4 percent of total applications – its highest level since January 2009.

Frank Nothaft, Freddie Mac’s chief economist, says for the past two months, refinancing has accounted for more than 80 percent of conventional loan applications. Through the first half of this year, Freddie and sister GSE Fannie Mae have purchased nearly 1.4 million refinance loans.

Nothaft explained that on average, these borrowers have shaved about one percentage point off of their interest rate, reducing annual mortgage payments by an aggregate $2.5 billion over the first year of the new loan.

He also pointed out that nearly one in three homeowners who refinance in the second quarter shortened their loan term from 30 years to 20 or 15 years, “increasing the rate of future principal pay-down and increasing the rate of home equity buildup,” Nothaft said.

MBA’s weekly application survey recorded a 3.4 percent decline in home purchase applications last week as buyer demand continues to wane. But the surge in refinances pushed the trade group’s total measure of mortgage application volume up 13 percent for the week.

Overall mortgage activity improved despite a slight uptick in long-term interest rates. MBA reports that the average contract interest rate for 30-year fixed-rate mortgages increased to 4.60 percent, up from 4.57 percent the week before. Rates for 15-year mortgage contracts rose from 3.95 percent to 3.99 percent.

The numbers for variable rate loans, on the other hand, are heading in the opposite direction. MBA’s data show that 1-year adjustable-rate mortgages (ARMs) dropped from 7.00 percent to 6.90 percent last week. Fannie Mae has said it projects the share of ARM loans to more than double within the next two years.