Mortgage applications rose sharply last week

"With mortgage rates reaching new lows, refinance volume jumped and MBA's refinance index reached its highest level in the last six months," he said. 

The housing market remains sluggish despite record-low interest rates mainly because of persistently high unemployment, tight lending standards and homeowners who can't refinance because they are under water on their mortgages. 

The refinance share of mortgage activity increased to 82.2 percent of total applications from 80.8 percent the previous week, the highest level since Oct. 22, 2010. 

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.06 percent from 4.11, the lowest 30-year fixed rate in the history of the survey. 

On jumbo loan balances, those greater than $417,500, the 30-year rate increased to 4.40 percent from 4.34. 

The rate for 30-year fixed-rate mortgages backed by the Federal Housing Administration decreased to 3.91 percent from 3.96, a record low, while the rate for 15-year fixed-rate mortgages dropped to 3.33 percent from 3.40, the lowest level since records have been kept.