By Richard Leong
NEW YORK (Reuters) - U.S. mortgage applications jumped to their highest level in 2-1/2 years, led by a surge in refinancing activity, as some home borrowing costs declined to their lowest levels in more than a year, the Mortgage Bankers Association said on Wednesday.
The Washington-based group's seasonally adjusted index on requests for loans to buy a home or refinance a mortgage increased 18.6% to 503.6 in the week ended March 29. This was the strongest reading since 512.9 in the week of Oct. 14, 2016.
Interest rates on 30-year "conforming" mortgages, or home loans with balances of $484,350 or less, averaged 4.36 percent, the lowest since the week of Jan. 19, 2018. They were 4.45% a week earlier.
Average rates on other fixed-rate mortgages MBA tracks fell by 0.07 percentage point to 0.14 percentage point.
"There was a tremendous surge in overall application activity, as mortgage rates fell for the fourth week in a row," Joel Kan, MBA's associate vice president of economic and industry forecasting, said in a statement.
Much of the week's increase stemmed from a 39% surge in refinancing activity, which propelled MBA's refinancing gauge to 1,786.0, its strongest level since November 2016.
Refinancings grew to 47.4% of total mortgage applications last week from 40.4% a week earlier, MBA data showed.
Existing homeowners with more expensive homes filed more refinancing applications with lenders last week.
The average size of conforming loans for refinancing hit an all-time high at $438,900 in the latest week.
Loan applications to buy a home climbed by 3%, with the average loan size shrinking slightly.
Smaller purchase loan sizes were "a positive sign that first-time buyers were increasingly active in the market," Kan said.
MBA's seasonally adjusted barometer on purchase mortgages, seen as a proxy on future housing activity, has advanced since early March to 276.6, which was its highest level since the week of Jan. 11.
(Reporting by Richard Leong; Editing by Chizu Nomiyama and Richard Chang)