(By Salman - iStockAnalyst Writer)Thanks to record low mortgage rates, the demand for home refinancing has jumped to a five and a half year high.

According to Mortgage Banker's Association, refinancing filings index rose 25.6% last week compared with the week before. It is the highest reading for the index since the week ended June 27, 2003. The report showed that refinancing made up 85.3% of all applications last week, up from 79.8% the prior week.

On the other hand, applications seeking mortgages to purchase homes fell a seasonally adjusted 14.1% on a week-to-week basis.

On a seasonally adjusted basis, the total volume of applications filed rose 15.8% compared with the previous week. Mortgage applications overall were up an unadjusted 52.4% compared with the same time last year.

The four-week moving average for all mortgages increased a seasonally adjusted 10.8%, the MBA said.

The refinancing has particularly got a boost from low mortgage rates.
Wednesday's report by MBA showed that average rate on 15-year fixed-rate mortgages continued to move south, down to 4.63% last week from 4.67% the past week.

Similarly, the average rate on thirty-year fixed-rate mortgages tumbled to 4.89% -the lowest rate since the survey began in 1990.Thirty-year mortgage rates have fallen sharply since the Federal Reserve announced a plan in late November to buy as much as $500 billion of mortgage backed securities in order to stabilize housing market.

Analysts feel that there is scope for mortgage rates to fall further-even below 4%. Thus, there is still plenty of time for homeowners who wish to refinance their loans.

A natural question which arises is who should go for refinancing? Experts say that the general rule is that an individual should go for refinancing if it reduces interest rate by two percent.

However, the mortgage underwriting standards have tightened and now the lenders are asking for more documentation than past for approving loans to credit-worthy individuals. Most of the attractive interest rate loans are for individuals with good credit scores only.

Few optimists are hopeful that low mortgage rates would eventually bolster demand for homes. However, experts are pointing out that only low mortgage rates are not enough, there must be improvement on the front of economy, financial markets and employment picture as well.