U.S. mortgage applications spiked in the first full week of 2009 as record low interest rates triggered the highest demand for loan refinancing in 5-1/2 years, according to the Mortgage Bankers Association.

Low mortgage rates, however, have yet to fuel a surge in loans for home purchases.

The MBA said its seasonally adjusted index of mortgage applications for the week ended Jan. 9 increased 15.8% to 1,324.8. That’s the highest reading since the week ended July 11, 2003, when it reached 1,358.2.

Thirty-year mortgage rates have dropped dramatically since the Federal Reserve unveiled a plan in November to buy as much as $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae.

The refinance share of applications increased to 85.3% from 79.8% the previous week, the highest level since the MBA started conducting its survey in 1990.

Spencer Rascoff, chief operating officer at Zillow.com, an online real estate service company based in Seattle, said loan requests to his company are up more than 200% from just two months ago, with loan requests on pace to hit about 25,000 in January and loan quotes on pace to hit 200,000.

“Many experts agree that rates will stay relatively low for at least the next few months since the federal government is now committed to buying mortgage-backed securities to keep borrowing costs low,” Rascoff said.

Here’s a sampling of interest rate drops:

30-year-fixed mortgages, averaged 4.89%, down 0.18 percentage point from the previous week, the lowest level recorded in the MBA’s survey’s history.

15-year fixed mortgage averaged 4.63%, down from 4.67% the previous week.

One-year ARMs decreased to 5.89% from 5.90%

Source: Reuters, CNNMoney.com (01/21/2009)