Mortgage application volume during the first week of January posted the sharpest rise in four years as borrowers jumped at falling interest rates, the Mortgage Bankers Association reported today.

The group’s market composite index, a measure of home loan application volume, jumped 32.2 percent on a seasonally adjusted basis between Christmas week and the first week of 2008. The last time the index rose this sharply in a one-week period was in January 2004 with a 30.4 percent gain.

By category, the index that tracks refinancings posted the strongest growth, rising 53.9 percent last week on a seasonally adjusted basis from the week before. The index tracking purchase loans grew 14.7 percent during the period.

Inspiring borrowers to action was a large decline in interest rates. According to MBA, the average contract interest rate on 30-year fixed-rate mortgages fell to 5.73 percent last week from 6.05 percent one week earlier, and the average rate on 15-year fixed loans tumbled to 5.21 percent from 5.61 percent.

Rates on adjustable-rate mortgages (ARMs), however, edged up from 6 percent to 6.04 percent during the period, MBA reported.

Points, or loan-processing fees expressed as a percent of the total loan amount, averaged 1.1 on the 30-year loans, 1.18 on the 15-year, and 0.99 on one-year ARMs. These points include the origination fee and are based on loan-to-value ratios of 80 percent.

According to MBA, the refinance share of applications increased to 57.7 percent last week from 50.9 percent the previous week, while the ARM share dipped to 9.3 percent from 9.8 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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