Home loan applications climbed last week by the strongest pace in more than a month, the Mortgage Bankers Association reported today.

The market composite index, which measures total mortgage loan application volume, was up 5.5 percent on a seasonally adjusted basis from the week before, according to MBA. The index, although it included an adjustment for the fact that banks were closed on Labor Day, has not seen this large of an increase since the Aug. 8 survey when the index rose 8.1 percent.

The index that tracks refinancings posted the most growth in the latest survey, rising 6 percent from the previous week, while the purchase loan index gained 5.2 percent.

Perhaps the most compelling reason for the upswing in applications was the large decline in interest rates. MBA reported that the average contract interest rate for 30-year fixed-rate mortgages dropped to 6.25 percent from 6.42 percent, while the rate on 15-year fixed-rate loans slid to 5.9 percent from 6.1 percent and the rate on one-year adjustable-rate mortgages (ARMs) declined to 6.34 percent from 6.52 percent.

Points, which are loan-processing fees expressed as a percent of the total loan amount, averaged 1 on the 30-year loans, 1.03 on the 15-year, and 0.93 on one-year ARMs. These points include the origination fee and are based on loan-to-value ratios of 80 percent.

Both refinancings and ARMs gained market share last week, with refis commanding 42.1 percent of total applications and ARMs growing to 13.2 percent, up from 41.4 percent and 12.6 percent, respectively, according to MBA.

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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