Although mortgage rates had lowered, so has home mortgage applications... except for refinancing.

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According to the Mortgage Bankers Association, the seasonally adjusted index of total mortgage applications dipped 3% in the week ending Oct. 27 to 570.8, the lowest level in more than a month.

The average on 30-year fixed-rate mortgage rates; which drive the most common type of home loan, had climbed to 6.36% through Oct. 20 from 6.18% in mid-September.

The rate, which typically leads application activity by several days, averaged 6.24% in the latest week.

The four-week moving average for the applications index was 586.1, down 2.6% on the week but above levels for most of the second and third quarters.

That data suggested to some analysts that the housing market may be leveling out after rising interest rates and inventories of homes cooled sales through the first half of the year.

The MBA's sub-indexes, however, on Wednesday showed that stability in the market may be fleeting. The component index of home purchases declined 1.8% to 375.6, the lowest level of the current downturn.

The association's gauge of loan refinancing fell 4.5% to 1,709.2.

Separately, a poll found that 36% of those surveyed with adjustable-rate mortgages worry that they won't be able to afford their monthly mortgage payments if their interest rates increase.

Per Freddie Mac, last week rates on one-year ARMs averaged 5.60%, up from 4.91% a year ago.

Despite the worries, the AP-AOL Real Estate poll revealed 35% of likely future buyers say they'll seek an adjustable-rate mortgage to finance their home purchase. People most likely to seek adjustable-rate mortgages are first-time home buyers, younger people, those with less education and lower incomes, unmarried adults and minorities.

The AP-AOL Real Estate poll of 2,001 adults, including 289 recent home buyers and 401 likely future home buyers, was conducted by telephone Sept. 19-26 by Ipsos. The poll had a margin of error of plus or minus 2 percentage points for all adults, 6 percentage points for recent home buyers and 5 percentage points for likely future home buyers.

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Meanwhile; on the home equity loan front - - Homeowners took cash out of their homes in the third quarter at the highest rate in 16 years, spurred by high costs on other types of loans, according to home finance company Freddie Mac.

In the quarter, 89 percent of Freddie Mac-owned loans that refinanced got mortgages that were at least 5 percent higher than the original balances. The share was up from 88 percent in the prior quarter and the highest since 91 percent in the second quarter of 1990.

"High demand for cash extraction through refinance is being driven by the high cost of home improvement loans and home-equity lines of credit -- that is, the cost of alternative financing -- and still-strong demand for home improvements," Amy Crews Cutts, Freddie Mac deputy chief economist, said in a release.

Also, a huge wave of adjustable-rate mortgages (ARMs) created in the past few years are facing their first reset, giving borrowers an incentive to refinance and take added cash, Freddie Mac said.

Fixed-rate 30-year mortgages average about 6.4 percent. Freddie Mac predicts the rate will hover between its current level and 6.6 percent through the end of 2007.

Initial rates on one-year Treasury-indexed ARMS are seen between 5.4 percent and 5.5 percent in that period.

In contrast, home equity loans and lines of credit are tied to a prime rate now pegged above 8 percent.

"If borrowers are already refinancing to avoid an interest-rate increase on their adjustable-rate mortgage, they may opt to extract a little cash while they are at it," Crews Cutts said.

Short-term rates have surged since many of these ARM loans were created, after the Federal Reserve raised official interest rates 17 times in over two years starting in June 2004. Many borrowers are expected to refinance into a newer ARM or lock in a relatively low fixed-rate mortgage.

The Mortgage Bankers Association last week estimated that $1.1 trillion to $1.5 trillion of ARMs will be eligible for reset next year.

"Additionally, borrowers who might have considered a prime-rate home-equity loan for a home improvement or other need are turning to cash-out refinance options now that the prime rate is above 8 percent," Freddie Mac's chief economist Frank Nothaft, said in the release.

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