The volume of mortgage applications increased last week as a result of the lower rates to refinance home loans. This was according a report last Wednesday by the Mortgage Bankers Association, a national association representing the real estate finance industry.

The association’s seasonally adjusted application index jumped 2.9 percent to 841.4 in the week ended December 12. The index stood at 817.7 a week earlier.

Interest rates have been declining in the past weeks and are expected to continue to drop as the Federal Reserve is moving to cut its target interest rate to nearly zero.

Refinance volume increased 6.5 percent last week, while purchase volume dropped 4.5 percent.

The highest the index reached this year was 1,086 during the week ended February 2. The index was at its peak during the week ended May 30, 2003 at 1,856.7. During this year was the height of the housing boom.

 An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. The survey provides a picture of mortgage lending activity involving mortgage bankers, commercial banks and thrifts. It covers about 50 percent of all residential retail mortgage originations each week.

The average rate for traditional, 30-year fixed-rate mortgages fell to 5.18 percent from 5.44 percent, according to the MBA report. The average rate for 15-year fixed-rate mortgages dropped to 4.93 percent from 5.08 percent.

The average rate for one-year adjustable-rate mortgages dropped to 6.63 percent from 6.76 percent.