Mortgage application volume increased 7.6% on a seasonally adjusted basis last week, with the refinance index jumping 8.6% to the highest level since May of last year, the Mortgage Bankers Association reported Wednesday. Moreover, the Purchase Index, which had dropped to an 30-month low in the previous week, increased 3.4%.

On an unadjusted basis, the Market Composite Index, the chief measure of mortgage loan application volume, increased 19.5% compared with the previous week, which included the Independence Day holiday. The unadjusted Purchase Index increased 15.3% compared with the previous week and was 35.7% lower than the same week one year ago.

The four week moving average for the seasonally adjusted Market Index was up 4.9%; for the Purchase Index, it was down 1.3%, and for the Refinance Index, it was up 6.5%.

The refinance share of mortgage activity increased to 79.4% of total applications from 78.7% the previous week, the highest refinance share since April 2009. The ARM share of activity decreased to 5.2% from 5.5%.

"The refinance index is up almost 30% over the past 4 weeks, but is still well below the peak seen last spring," said Michael Fratantoni, MBA's vp of research and economics. "Refinance borrowers, aiming for the lowest possible rate, are getting conventional loans. The strength in purchase applications comes from government loans, likely indicating that prospective buyers are drawn by the lower down-payment requirements."

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.59% from 4.69%, with points increasing to 1.04 from 0.96 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This was the lowest 30-year contract rate ever recorded in the MBA's survey. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.05% from 4.12%, with points decreasing to 0.88 from 1.04. It was also a new low. The average contract interest rate for one-year ARMs decreased to 7.17% from 7.20%, with points increasing to 0.24 from 0.22.