Mortgage applications rose slightly last week as a jump in refinancing demand overshadowed a drop in demand for loans to buy houses, an industry group said on Wednesday.

The Mortgage Bankers Association's home loan application index climbed 0.9 percent to a seasonally adjusted 631.6 in the week ended July 13.

The refinancing applications index increased 4.9 percent to a seasonally adjusted 1,717.4, more than offsetting the 1.6 percent drop in the purchase index to 446.5, the MBA said.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.65 percent, dropped 0.04 percentage point to 6.61 percent.

Long-term mortgage rates since early June have been hovering at their highest rates since last summer, crimping affordability at a time when lenders are also making it more difficult for buyers to get mortgages approved.

On a four-week moving average, which smooths out near-term volatility, all three of the MBA's indexes dropped by less than 1 percent.

Mounting late payments and foreclosures, softening sales and falling prices have yet to take the beleaguered U.S. housing sector to this cycle's low, most analysts agree.

U.S. home builder sentiment this month sank to its lowest level in about 16-1/2 years, the National Association of Home Builders said on Tuesday. Builders are still grappling with huge stockpiles of unsold homes, even after months of slicing prices and throwing in incentives to sweeten the deals.

Later on Wednesday, the Commerce Department will report further erosion in housing starts and permits to build homes, based on surveys of economists by Reuters.

New construction likely dropped in June because of the already unwieldy supply of unsold homes and tighter lending standards that further squeezed affordability and access to credit, economists said.

Mortgage