U.S. mortgage applications fell for a fourth consecutive week, with overall demand plunging to its lowest level in nearly seven months, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended June 12 decreased 15.8 percent to 514.4, the lowest since the week ended November 21, 2008.

A rise in mortgage rates in recent weeks had sapped demand, particularly for home loan refinancing, but the direction of rates reversed course last week.

Cameron Findlay, chief economist at LendingTree.com based in Charlotte, North Carolina, said borrowers who are considering refinancing their current mortgage are now reevaluating their decision, given the swift and sharp rise in mortgage rates over the past few weeks.

When rates move in volatile swings like this, it is critical (that) borrowers look for competitive rates -- competition in this environment keeps mortgage companies honest, he said.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.50 percent, down 0.07 percentage point from the previous week, but significantly higher than the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990.

Interest rates, however, were well below year-ago levels of 6.57 percent.

Thirty-year mortgage rates had mostly been on a downward trend since the Fed unveiled its plan to buy mortgage-backed debt in late November. But the Fed has recently met resistance in the bond market.

Treasury yields, which are linked to mortgage rates, rose sharply earlier this month, with mortgage rates responding in kind. Treasury yields have come down recently, allowing rates to fall.

The plunge in demand for home loans may help gauge how the hard-hit U.S. housing market is faring this spring, the peak home buying season.

The MBA's seasonally adjusted purchase index fell 3.5 percent to 261.2.

The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was down 13.5 percent.

WEEKLY REFINANCING ACTIVITY PLUNGES

The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world. Economists contend that the economy might not emerge from its slump unless the housing market stabilizes.

The Mortgage Bankers seasonally adjusted index of refinancing applications decreased 23.3 percent to 1,998.1, also the lowest since the week ended November 21, 2008.

Kevin Walker, CEO of MortgageReport.com in Newton, Massachusetts, a new resource for homeowners, said the impact of higher interest rates on mortgages is moderate because a large number of consumers did refinance over the past several months, and therefore most holders of conforming mortgages took advantage of low rates.

However, many holders of non-conforming loans, might not have been able to refinance and those borrowers with adjustable-rate mortgages might now be sweating it out because their impending re-set dates are approaching just as rates are trending higher, he said.

So it's a mixed bag: positive for those who did lock in low rates, but still unsettling for many millions of additional mortgage holders, he said.

The refinance share of applications decreased to 54.1 percent from 59.4 percent the previous week. The adjustable-rate mortgage share of activity increased to 4.3 percent in the latest week, up from 3.4 percent the previous week.

Fixed 15-year mortgage rates averaged 4.99 percent, down from 5.10 percent the previous week. Rates on one-year ARMs decreased to 6.54 percent from 6.75 percent the prior week.

(Editing by Jan Paschal)

Mortgage