Overall mortgage applications increased 4.9 percent last week on a seasonally adjusted basis from the week before, fueled by a significant drop in interest rates, the Mortgage Bankers Association reported today.

The seasonally adjusted purchase index increased by 3.4 percent to 388.9 from 376.2 the previous week, and the refinance index increased by 7.1 percent to 1,518.1 from 1,417.2 one week earlier.

The refinance share of mortgage activity increased to 38 percent of total applications from 37 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 27.6 percent of total applications from 27.8 percent the previous week, and is now at its lowest since March 2004.

The average contract interest rate for 30-year fixed-rate mortgages dropped to 6.45 percent from 6.62 percent, with points including the origination fee increasing to 1.01 from 1 for 80 percent loan-to-value ratio loans.

Points, which are fees charged by lenders for loan processing, are expressed as a percent of the total loan amount.

The average contract interest rate for 15-year fixed-rate mortgages fell to 6.1 percent from 6.28 percent, Points including the origination fee increased to 1.09 from 1 for 80 percent loan-to-value ratio loans.

The average contract interest rate for one-year ARMs declined to 5.96 percent from 6.18 percent, with points including the origination fee decreasing to 0.80 from 0.81 for 80 percent loan-to-value ratio loans.

Washington, D.C.-based Mortgage Bankers Association is a national association representing the real estate finance industry. The survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.

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