Overall mortgage application volume increased 8.1 percent last week on a seasonally adjusted basis from the week before, inspired by a significant drop in interest rates, the Mortgage Bankers Association reported today.

The seasonally adjusted refinance index increased by 13.7 percent to 1,989.7 from 1,749.6 the previous week, and the purchase index increased by 4.9 percent to 426.6 from 406.7 one week earlier.

The refinance share of mortgage activity increased to 50.1 percent of total applications from 46.9 percent the previous week, and is now at its highest level since April 2004. The adjustable-rate mortgage (ARM) share of activity decreased to 23.9 from 24.5 percent of total applications from the previous week, and is at its lowest level since October 2003.