Oct. 8 (Bloomberg) -- Mortgage applications in the U.S. rose last week as lower interest rates lifted purchases from a six-year low.

The Mortgage Bankers Association's index of applications to purchase a home or refinance a loan increased 2.2 percent to 465.5 from 455.4 the prior week. The group's purchase index gained 3.2 percent and its refinancing gauge rose 0.9 percent.

The deepening credit crisis threatens to prolong the housing recession into 2009. Banks are reluctant to loan to potential buyers as house prices decline and foreclosures mount.

``The credit problems are limiting mortgages,'' Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, said before the report.

The mortgage bankers' purchase index climbed to 314.5 from 304.8 the previous week, the lowest since February 2002. The refinancing gauge increased to 1,345.8 from 1,333.9.

The average rate on a 30-year fixed-rate loan fell to 5.99 percent from 6.07 percent the prior week, the report showed. At the current rate, monthly borrowing costs for each $100,000 of a loan would be about $599, up $31 from mid-January, when the fixed rate reached a three-year low of 5.5 percent.

Even as borrowing costs dropped, fewer homeowners sought to refinance out of adjustable-rate mortgages into longer-term fixed loans. The share of applicants seeking to refinance loans decreased to 43.4 percent of total applications from 44 percent the previous week, today's report showed.

Rescue Plan

The U.S. Treasury Department is preparing to implement a $700 billion program aimed at shoring up the financial system and freeing up more credit by purchasing illiquid assets from troubled firms. Congress approved the plan and President George W. Bush signed the measure into law on Oct 3.

Today's report also showed the average rate on a 15-year fixed mortgage decreased to 5.71 percent, the lowest in three weeks, from 5.82 percent. The rate on a one-year adjustable mortgage fell to 6.60 percent from 6.61 percent the prior week.

The Washington-based Mortgage Bankers Association's loan survey, compiled every week since 1990, covers about half of all U.S. retail residential mortgage originations.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

Last Updated: October 8, 2008 07:00 EDT