Nov. 13 (Bloomberg) -- Mortgage applications in the U.S. climbed last week from an almost eight-year low as homeowners took advantage of lower interest rates to refinance loans.

The Mortgage Bankers Association's index of applications to purchase a home or refinance a loan rose 12 percent to 425 for the week ended Nov. 7, from 379.9 the prior week. The group's purchase index increased 9 percent and its refinancing gauge jumped 16 percent.

The deepening credit crisis has prompted banks to toughen lending rules, indicating some of these applications may not be approved. Falling home values are hurting household wealth and causing consumers to spend less, one reason why the economy is forecast to contract for a second consecutive quarter.

``Mortgage applications have been trending sharply lower so far this year, a trend that is expected to continue for several more months,'' Steven Wood, president of Insight Economics LLC in Danville, California, said before the report.

The mortgage bankers' purchase index rose to 284.4 from the previous week's 8-year low of 260.9, today's report showed. The refinancing gauge increased to 1,248.4 from 1,075.4.

A decline in mortgage rates may have revived interest in lowering loan costs. The average rate on a 30-year fixed loan fell to 6.24 percent from 6.47 percent the prior week. As a result, demand for fixed-rate financing increased 12 percent.

At the current 30-year rate, monthly borrowing costs for each $100,000 of a loan would be about $615, up $47 from mid- January, when the rate reached a three-year low of 5.5 percent.

More Refinancing

The share of applicants seeking to refinance loans increased to 45.1 percent from 42.9 percent of total applications.

U.S. homebuilders are struggling as prospective buyers are unable to secure financing. Toll Brothers Inc., the largest U.S. luxury homebuilder, said this week that fourth-quarter revenue dropped 41 percent as the credit crisis deepened.

``Unfortunately, the preliminary signs of stability we had discussed in early September were upended by the past month's financial crisis,'' Chief Executive Officer Robert Toll said in a Nov. 11 statement. Disruptions in credit markets have driven ``home-buyer confidence and our traffic and demand down to record lows,'' he said.

Today's report also showed the average rate on a 15-year fixed mortgage decreased to 5.90 percent from 6.14 percent. The rate on a one-year adjustable mortgage slipped to 6.77 percent from 6.86 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: November 13, 2008 07:00 EST