Mortgage interest rates dropped slightly during the week ended July 3 according to results of the Primary Mortgage Market Survey released by Freddie Mac.

The 30-year fixed-rate mortgage (FRM) eased back from the 6.45 percent with 0.6 point that it had averaged for the week ended July 26 to 6.35 percent also with 0.6 point.

The 15-year FRM fell down below 6 percent as the average contract interest rate went from 6.04 percent with 0.6 point the previous week to 5.92 percent with 0.6 point.

The rate for adjustable rate mortgages also moderated. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 5.78 percent, a 21 basis point drop from the previous week. Fees and points were unchanged at 0.7.

One-year Treasury-indexed ARMs averaged 5.17 percent with 0.6 point. One week ago the average was 5.27 percent with 0.6 point.

"Mortgage rates reversed their three-week rise, falling this week after the release of the latest Federal Reserve's (Fed) policy statement that it expects inflation to moderate later this year and the reporting of May's timid increase in core personal consumption prices," said Frank Nothaft, Freddie Mac vice president and chief economist. "According to recent trading activity in federal funds futures, market participants lowered somewhat their expectations of future rate hike hikes by the Fed compared to last week.

"Housing affordability fell in April due to gains in median house prices during the month, according to the National Association of Realtors. However, even with the recent erosion in affordability, homes were still more affordable in April than during the 2005-2007 period of skyrocketing house prices."

The Weekly Mortgage Applications Survey for the week ended July 4 was released on Wednesday by the Mortgage Bankers Association. It showed both mortgage loan activity and interest rates increasing during that week.

The average contract interest rate for 30-year FRMs increased from 6.33 percent to 6.43 percent with points, including the origination fee, decreasing to 1.06 from 1.09.

15-year FRMs increased from an average contract interest rate of 5.90 percent to 5.94 percent with points increasing from 1.02 to 1.10.

The interest rate for one-year ARMs increased 10 basis points to 7.24 percent with points decreasing to 0.26 from 0.31.

Loan activity as measured by loan application volume increased 7.5 percent over the previous week. This figure included an adjustment to account for the short week because of the July 4 holiday. Volume was down 18.1 percent compared with the same week one year ago.

The share of applications attributable to refinancing increased to 37.3 percent from 36.8 percent the week before while applications for adjustable-rate mortgages climbed back into double digits at exactly 10.0 percent of total applications compared to 8.5 percent the previous week.