Applications for U.S. home mortgages rose last week, snapping a three-week decline, as interest rates fell for the first time since June, an industry group said.

The Mortgage Bankers Association (search) said its seasonally adjusted index of mortgage application activity rose 2.2 percent to 761.3 in the week ended Aug. 12, following three straight weeks of falls.

The climb in mortgage activity was led by refinancings. The group's seasonally adjusted index of refinancing applications rose for the first time in a month, climbing 5.0 percent to 2285.5 after falling 3.3 percent the prior week.

Borrowers swapping their adjustable-rate mortgages (search) (ARMs) for fixed-rate loans contributed to the uptick in refinancings following the Federal Reserve's hike in short-term rates last Tuesday, analysts said.

"What we are likely seeing here is a last minute surge in people trying to 'disARM'-that is refinancing out of their ARMs and into a long-term loan program in light of the Fed's decision," said Quicken Loans' chief economist Bob Walters.

The MBA's purchase index, a gauge of loan requests for home purchases, increased 0.1 percent to 499.3, adding to the previous week's 0.9 percent gain.

After steadily climbing since late June, fixed 30-year mortgage rates fell last week, averaging 5.79 percent, excluding fees, down 12 basis points, or 0.12 of a percentage point, from 5.91 percent the previous week.

The 30-year mortgage rate stood at 5.47 percent in the week ending June 24, its lowest level in 2005.

Fixed 15-year mortgage rates last week averaged 5.40 percent, down from 5.49 percent the previous week. Rates on one-year adjustable-rate mortgages (ARMs) decreased to 4.85 percent last week from 4.88 percent one week earlier.

The 30-year rate, the industry benchmark, is still below the 2005 high of 6.08 percent reached in late March.

But in a break from recent trends, the rate now stands higher than the year-earlier level. It was 5.75 percent in the week ended Aug. 13, 2004.

Even so, the MBA noted mortgage activity is still substantially up compared with year-ago levels as house prices have risen.

"The overall number of applications is up 10.6 percent over the same time last year while the dollar volume of applications is up 26.1 percent," Michael Cevarr, the MBA's director of member surveys said. "This increase is true for both purchase and refinance applications, no doubt reflecting the increase in home values over the past year."

The MBA's four-week moving average of mortgage activity slipped 1.3 percent to 753.2 from 763.1.

On a four-week moving average, the refinancing index dropped 0.3 percent to 2335.3 from 2341.3. On a four-week-moving average, the purchase index is up 0.5 percent to 494.4 from 491.8.

Economists scan mortgage activity figures and other key housing data because the sector is a major driver of the economy.

"We find that the red hot housing sector alone, which typically represents just 5 percent of the total economy, accounted for an astounding 50 percent of the overall growth in the U.S. economy by the first half of this year, and more than half of the private payroll jobs created since 2001 fall were in housing-related sectors," a Merrill Lynch report said this week.

U.S. housing starts edged down in July, but exceeded Wall Street forecasts as groundbreaking for single-family homes marched higher, a Commerce Department report showed on Tuesday.

U.S. home builder sentiment fell a second straight month in August, but remained at a strong level, the National Association of Home Builders (search) said earlier this week.

Refinancings last week increased as a percentage of all mortgage applications, rising to 42.4 percent from 40.9 percent.

After rising during the previous week, demand for adjustable-rate mortgages fell in the week ended Aug. 12, the MBA said.

The ARM share of activity stood at 28.9 percent of total applications last week, down from 29.7 percent the previous week. With ARMs, low initial payments allow borrowers to buy homes they may not be able to afford with a fixed-rate loan.

The MBA's survey covers about 50 percent of all U.S. retail residential mortgage originations and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.