Overall mortgage application volume last week jumped to its highest level since October 2005 as lower interest rates inspired a surge in refinancing and new purchases, the Mortgage Bankers Association reported today.

The market composite index, which measures total home loan volume, rose to 721.2 last week, up 11.4 percent on a seasonally adjusted basis from 647.6 the week before. Separately, the seasonally adjusted refinance index increased by 15.8 percent to 2,304.4 from 1,989.7 the previous week, and is now at its highest level since September 2005. The purchase index hit an 11-month high, rising 8.7 percent to 463.8 last week from 426.6 one week earlier.

“The substantial decline in mortgage rates over the past six months, greater than 80 basis points in total, has led to a significant increase in refinance activity. Additionally, we are seeing a steady increase in purchase applications,” said Mike Fratantoni, senior economist at the Mortgage Bankers Association.

The refinance share of mortgage activity grew to a 32-month high last week, rising to 52.6 percent of total applications from 50.1 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 24.9 from 23.9 percent of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages last week edged up to 6.02 from 5.98 percent, with points including the origination fee increasing to 1 from 0.91 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 increased to 5.75 percent last week from 5.66 percent the week before. Points including the origination fee decreased to 1 from 1.01 for 80 percent loan-to-value ratio loans.

The average contract interest rate for one-year ARMs sank to its lowest level since March 2006, falling to 5.76 percent from 5.79 percent two weeks ago, with points including the origination fee increasing to 0.81 from 0.77 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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