updated 12/6/2006 4:50:21 PM ET 2006-12-06T21:50:21

U.S. mortgage applications rose sharply last week, fueled by a surge in home refinancing loans as interest rates sunk to their lowest levels in more than a year, an industry trade group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and purchasing loans, increased 8.1 percent to 647.6 for the week ended Dec. 1 from the previous week's 599.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.98 percent, down 0.15 percentage point from the previous week, the lowest since the week ended Oct. 7, 2005, when it stood at the same level. Interest rates were also below year-ago levels of 6.32 percent.

Fueling the rise last week was a 13.7 percent rise in the MBA's seasonally adjusted index of refinancing applications to 1,989.7. A year earlier the index stood at 1,596.4.

The refinance share of applications increased to 50.1 percent from 46.9 percent the previous week, its highest since April 2004.

Demand for home purchase loans was also robust.

The MBA's seasonally adjusted purchase index, widely considered a timely gauge of U.S. home sales, rose 4.9 percent to 426.6, its highest since May. However, the week's purchase index reading was substantially below its year-ago level of 495.1.

Fixed 15-year mortgage rates averaged 5.66 percent, down from 5.86 percent, its lowest since January. Rates on one-year adjustable-rate mortgages (ARMs) decreased to 5.79 percent from 5.87 percent, its lowest since March.

The ARM share of activity decreased to 23.9 percent of total applications from 24.5 percent the previous week, its lowest since October 2003.

The MBA's survey covers about 50 percent of all U.S. retail residential loans. Respondents include mortgage banks, commercial banks and thrifts.

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