U.S. mortgage application volumes saw a significant drop in the final week of March, driven by 30-year mortgage rates climbing to their highest level since last August.

Applications decreased 10.4% on a seasonally adjusted basis for the week ending March 27, according to Mortgage Bankers Association (MBA) data. On an unadjusted basis, mortgage demand decreased 10% during the week.

“The 30-year mortgage rate, now at 6.57%, reached its highest level since last August and is up half a percentage point from just one month ago,” noted Mike Fratantoni, MBA’s senior vice president and chief economist, in commentary accompanying the data.

The rate-sensitive refinance market bore the brunt of the impact, reflected by the MBA’s refinance index plunging 17% from the previous week. The rapid rise in borrowing costs has quickly erased the financial incentive for many homeowners who might have been considering altering their loan terms earlier in the year.

Fratantoni highlighted the severity of this contraction, stating that refinance application volumes “are down more than 40% compared to last month.” Despite the sharp weekly and monthly drops, refinance activity remained 33% higher than the same week one year ago. 

Government-backed refinances also took a hit. Federal Housing Administration refinance applications fell 15.4%, while Department of Veteran Affairs refinance applications dropped 15% last week.

Prospective homebuyers were also deterred, though the impact was slightly less severe.

The MBA’s seasonally adjusted purchase index saw a 3% decline from one week earlier. On an unadjusted basis, purchase demand decreased 2% compared with the previous week, though it managed to stay 1% higher than the same week one year ago.