Mortgage and refinancing applications surged by the largest amount on record last week as the new government bail-out takes effect in lowering interest rates to their deepest level in more than 3 years.

The Mortgage Bankers Association reported that their seasonally adjusted index of mortgage applications for the week ended November 28 surge by a record 112.1 percent to 857.7. This includes purchase and refinance loans. This is the highest reading since the week ended March 21 when it hit 965.9.

On an unadjusted basis, the index was up 51.4% from the previous week; it was down 21.9% from a year earlier, the report said. Results were adjustment to account for the Thanksgiving holiday.

The Mortgage Bankers Association said 30-year fixed-rate mortgages dropped to 5.47% this week from 5.99% last week.
Rates on 15-year fixed-rate mortgages fell to 5.13% from last week's 5.78%, the report said.

The rate on a one-year adjustable-rate mortgage  decreased to 6.61% from last week's 6.87%.

Potential borrowers were enticed by the attractive mortgage rates which dramatically dropped as the Fed announced their plan to buy as much as $500 billion of mortgage securities backed by Fannie Mae and Freddie Mac.