Bolstered by a week-to-week drop in interest rates, mortgage loan application volume jumped 7.6 percent for

the week ending July 16, 2010, the Mortgage Bankers Association (MBA) reported Wednesday.

According to MBA’s Weekly Mortgage Applications Survey, the uptick in overall mortgage application volume came as both purchase and refinance activity increased from one week to the next.

The purchase index edged up 3.4 percent from the week prior, driven by an 8 percent increase in government purchase applications. Meanwhile, conventional purchase applications were essentially flat, nudging up just 0.3 percent from the previous week.

“The strength in purchase applications comes from government loans, likely indicating that prospective

buyers are drawn by the lower down payment requirements,” said Michael Fratantoni, MBA’s VP of research and economics.

The week-to-week increase in refinance activity was more notable, as the refinance index soared 8.6 percent from the week prior. This, MBA said, brought the index to the highest level observed in the survey since the week ending May 15, 2009. As a result, the refinance share of mortgage activity rose to 79.4 percent of all applications – the highest refinance share observed since April 2009.

The growth in total refinance applications was due in large part to a 10.7 percent surge in conventional refinance applications from the week prior. During the same period, government refinance applications fell 4.2 percent.

“As rates on 30- and 15-year fixed-rate mortgages declined to the lowest levels recorded in the survey, refinance activity increased last week,” Fratantoni said. “The refinance index is up almost 30 percent over the past 4 weeks, but is still well below the peak seen last spring. Refinance borrowers, aiming for the lowest possible rate, are getting conventional loans.”

According to MBA, the average contract interest rate for 30-year fixed-rate mortgages fell to 4.59 percent from 4.69 percent, marking the lowest 30-year contract rate ever recorded in the survey. The average contract interest rate for 15-year fixed-rate mortgages also fell to the lowest level ever recorded in the survey, coming in at 4.05 percent from 4.12 percent the week prior.