A sizeable drop in mortgage rates last week inspired an upturn in mortgage applications, the Mortgage Bankers Association reported today in its weekly survey.

The market composite index, a measure of home loan application volume, rose 3.6 percent, climbing to 653.3 on a seasonally adjusted basis from 630.6 one week earlier.

The index that tracks home purchases gained 3.7 percent from mid-month, and the refinance index increased 3.6 percent, reversing five weeks of declines.

Both the purchase loan and adjustable-rate mortgage (ARM) shares of total applications increased last week, to 38.3 percent and 18.3 percent, respectively, while refinancings dipped to 43.4 percent, MBA reported.

Borrowing costs across all loan types were down for the first time in four weeks, with the average contract interest rate for 30-year fixed-rate mortgages falling to 6.13 percent from 6.22 percent, the 15-year fixed rate down from 5.92 percent to 5.82 percent, and the one-year ARM rate slipping from 5.89 percent to 5.79 percent.

Points, which are loan-processing fees expressed as a percent of the total loan amount, averaged 1.32 on the 30-year loans, 1.27 on the 15-year, and 0.73 on one-year ARMs. Statistics, which include the origination fee, are based on loan-to-value ratios of 80 percent.

The Mortgage Bankers Association 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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