Overall mortgage application volume increased 8.1 percent last week on a seasonally adjusted basis from the week before, inspired by a significant drop in interest rates, the Mortgage Bankers Association reported today.

The seasonally adjusted refinance index increased by 13.7 percent to 1,989.7 from 1,749.6 the previous week, and the purchase index increased by 4.9 percent to 426.6 from 406.7 one week earlier.

The refinance share of mortgage activity increased to 50.1 percent of total applications from 46.9 percent the previous week, and is now at its highest level since April 2004. The adjustable-rate mortgage (ARM) share of activity decreased to 23.9 from 24.5 percent of total applications from the previous week, and is at its lowest level since October 2003.

The average contract interest rate for 30-year fixed-rate mortgages decreased to its lowest level since October 2005, falling to 5.98 percent last week from 6.13 percent the week before. Points including the origination fee decreased to 0.91 from 0.97 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 decreased to its lowest level in 11 months, sinking to 5.66 percent last week from 5.86 percent one week earlier. Points including the origination fee increased to 1.01 from 0.87 for 80 percent loan-to-value ratio loans.

The average contract interest rate for one-year ARMs decreased to 5.79 percent from 5.87, and is now at its lowest level since March 2006. Points including the origination fee decreased to 0.77 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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