A drop in interest rates drove homeowners and homebuyers to the mortgage market last week.

Total mortgage application volume increased 3 percent on a seasonally adjusted basis from the previous week, but is down 25 percent from a year ago, according to the Mortgage Bankers Association.

The increased mortgage activity was buoyed by applications to refinance home loans, which increased 5 percent from last week but were down 44 percent from a year ago.

“Mortgage rates decreased last week, which led to the highest volume of refinance applications since mid-June,” said MBA chief economist Mike Fratantoni. “The slight drop in rates likely reflected concerns about weakness in certain data released earlier in the week, such as the drop in auto sales, but the market also reacted to stronger-than-expected job growth in Friday’s employment report.”

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) dropped to 4.14 percent from 4.17 percent, with points increasing to 0.38 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio loans.

Fratantoni said a 15 percent increase in government refinance applications helped boost refinance applications. VA refinances jumped 17 percent last week.

Mortgage applications to purchase a home also increased, by 1 percent from the previous week.

“With rates trading in a narrow range, the purchase market continues to show strength, with application volume running about 7 percent ahead of last year,” said Fratantoni.

Refinance applications increased to 46.7 percent of total applications from 45.5 percent in the previous week. The adjustable-rate mortgage share of total mortgage activity increased to 6.8 percent. The FHA share of total applications decreased to 10.2 percent from 10.3 percent the previous week. The VA share of total applications increased to 10.7 percent from 10.1 percent the previous week.

Source:-cnbc