U.S. mortgage applications increased 23.1 percent in the week ending Jan. 13, according to the Mortgage Bankers Association.

Refinances increased 26.4 percent from the previous week, up to the highest level since Aug. 8, 2011. Refinances made up 82.2 percent of total applications, up from 80.8 percent in the previous week.

Sales increased 10.3 percent to the highest level since Dec. 12, 2011, but sales were only up 2.2 percent on a seasonally adjusted basis compared to the previous year.

“Interest rates dropped last week due to continuing anxieties regarding the fragile economic situation in Europe,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. Fratantoni continued, “With mortgage rates reaching new lows, refinance volume jumped and MBA’s refinance index reached its highest level in the last six months. Purchase activity also increased as buyers returned to the market after the holiday season.”

The average rate for 30-year fixed-rate mortgages of $417,500 or less decreased to 4.06 percent from 4.11 percent. The average rate for 30-year fixed-rate mortgages over $417,500 increased to 4.40 percent from 4.34 percent.

Fedeal Housing Administration (FHA)-backed 30-year fixed-mortgages fell to 3.91 percent from 3.96 percent. Fifteen-year fixed-rate mortgages fell to 3.33 percent from 3.40 percent.

The survey covers over 75 percent of the U.S. mortgage market.