Mortgage application volume during the second week of January posted a huge increase as interest rates continued to decline, the Mortgage Bankers Association reported today.

The group’s market composite index, a measure of home loan application volume, climbed 28.4 percent on a seasonally adjusted basis between the first and second weeks of January. This double-digit gain comes on the heels of a 32.2 percent rise in the index one week earlier, the largest in four years.

The index that tracks refinancings posted the largest gain, rising 43.4 percent last week on a seasonally adjusted basis from the week before, while the index tied to purchase loans grew 11.4 percent.

According to MBA, the average contract interest rate on 30-year fixed-rate mortgages sank to 5.62 percent from the previous week’s 5.73 percent, and the average rate on 15-year fixed loans dropped to 5.07 percent from 5.21 percent. Rates on adjustable-rate mortgages (ARMs) fell sharply during the period, with the average one-year ARM tumbling from 6.04 percent to 5.77 percent.

Points, or loan-processing fees expressed as a percent of the total loan amount, averaged 0.94 on the 30-year loans, 1.09 on the 15-year, and 1 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 62.7 percent last week from 57.7 percent the previous week, while the ARM share dipped to 9.2 percent from 9.3 percent. Just six months ago, the refi and ARM shares hovered around 36 percent and 20 percent, respectively.

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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