U.S. mortgage applications dropped last week, showing sign of a declining demand for home loans as interest rates jumped to their highest levels since late January, as data from a Mortgage Bankers Association report showed on Wednesday.

MBA’s seasonally adjusted index of mortgage applications which covers both purchase and refinance loans, dropped 16.2% to 658.7 for the week ended May 29.

Interest on 30-year fixed-rate mortgages, excluding fees, averaged 5.25%, up 0.44 percentage point from the previous week, its highest level since the week ended January 30. This is significant higher than 4.61 percent set in the week ended March 27, when the rates were at their lowest.

However, borrowing cost on the said loan were still below year-ago levels of 6.17 percent. Thirty-year mortgage rates had been most often sliding since the Fed made public its plan to buy mortgage-backed debt in late November.

However, demand for home purchase loans, an indicator of home sales, rose last week. The increase may help gauge how the hard-hit U.S. housing market is faring this spring, the peak home buying season.

The MBA's seasonally adjusted purchase index increased to 4.3 percent to 267. This is the highest level since the week ended April 3. The index, compared to last year’s level of 333.6, dropped 19.8 percent.

Overall mortgage applications last week were 31.1% above their year-ago level. The four-week moving average of mortgage applications, which smoothes weekly volatility, was down 9.0%.

The Mortgage Bankers' seasonally adjusted index of refinancing applications decreased 24.1 percent to 2,953.6, its lowest level since the week ended February 6 but was up 97.4 percent from last year’s level of 1,496.1.

The refinance share of applications decreased to 62.4 percent from 69.3 percent the previous week.

Fixed 15-year mortgage rates averaged 4.80 percent, up from 4.44 percent the previous week.

Rates on one-year ARMs increased to 6.61 percent from 6.55 percent.