Homeowners have taken advantage of record-low interest rates to refinance their homes. According to Lender Processing Services Inc., mortgage prepayment rates in August were up to its highest levels in seven years. The Florida-based mortgage data provider also showed that home loans were repaid in August at a pace that would erase 25% of the debt in a year and prepayments on loans to underwater borrowers — those who owe at least 20% more than what their homes are worth — have risen 65% this year.

The Mortgage Bankers Association announced today that refinancing applications increased by almost 20% last week to the highest level since April 2009. This year’s average pace is 56% greater than last year, according to the MBA.

Lower interest rates have played a role in the refinances and accelerated prepayment activity. The monthly average commitment rate for a 30-year fixed-rate mortgage in August was at 3.60%. While that was higher than July’s figure of 3.55%, it was lower than it was 12 months ago, when the rate was 4.27%.

As prepayment speeds increase, more home sales debt is retired. The retired debt hit a two-year high in August as the housing market showed signs of recovery. It also bodes well for bondholders who stood to lose when they bought debt for more than 100 cents on the dollar. The bond’s value drops when homeowners take out mortgages too quickly to repay existing debt. It is when repayments accelerate that the bond regains value.