Mortgage applications decreased last week, as an increase borrowing costs discouraged both purchase and mortgage refinancing activity, the Mortgage Bankers Association announced Wednesday.

The Mortgage Bankers Association's composite index of applications declined 14.2% on a seasonally-adjusted basis to 637.6 from last week's 734.4.

The Refinance Index decreased 20.2% to 2,286.3 from 2,866.0 the previous week and the seasonally adjusted Purchase Index decreased 6.4% to 357.3 from 381.6 one week earlier.

Rates rise

Meanwhile, the average rate for a 30-year fixed loan rose to 6.04% from 5.74% the prior week. The average rate for a 15-year fixed mortgage increased to 5.60% from 5.27%.

Also, the share of applications that involved a refinance declined to 49.2% from 53.5%.

Created in 1990, the Mortgage Bankers Association's loan survey covers about half of all U.S. retail residential mortgage originations.

Economic Analysis: Mortgage rates remain stubbornly high. The average rate rose about 25 basis points in the past week; this is a regression the U.S. Federal Reserve will have to watch closely, as it is weighing on mortgage applications. The Fed has cut benchmark, short-term interest rates by 300 basis points since September 2007, but mortgage rates have not fallen -- they're essentially flat, on a year-over-year basis. That's a tell-tale sign that banks remain concerned about their portfolios and about sluggish housing market conditions. For the housing sector to regain its sea legs -- and to help increase U.S. commercial activity -- mortgage rates must move toward the lower-end of their 10-year range.