WASHINGTON - Mortgage applications spiked last week to their highest level in more than five years, as borrowers took advantage of rates that fell to near-record lows after the government pledged to funnel money into the mortgage market.

Although borrowers around the country are taking advantage of historically low rates to refinance their loans, the opportunity isn't available to borrowers with poor credit or little equity in their homes, and foreclosures are still likely to surge.

The Mortgage Bankers Association said today its application index surged 48 percent in the week ended Dec. 19 to 1245.5, the highest level since July 2003, when refinancing activity boomed at the peak of the housing market. More than 80 percent of applications came from borrowers looking to refinance into loans with more affordable rates, the trade group said.

Interest rates plunged last month after the Federal Reserve said it would spend up to $600 billion buying mortgage-backed securities and other debt issued by government controlled mortgage finance companies Fannie Mae and Freddie Mac.

Refinance volume grew nearly 63 percent, while purchase volume rose by nearly 18 percent.

The index is still below its peak of 1,856.7 hit in May 2003 at the height of the housing boom.

The survey provides a snapshot of mortgage lending activity involving mortgage bankers, commercial banks and thrifts. It covers about half of all new residential mortgage loans each week.

An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume.

The average rate for traditional, 30-year fixed-rate mortgages decreased to 5.04 percent from 5.18 percent a week earlier, according to the MBA report. That was the lowest point in the weekly survey since rates fell to 4.99 percent in June 2003.

The average rate for 15-year fixed-rate mortgages fell to 4.91 percent from 4.93 percent a week earlier, while the average rate for one-year adjustable-rate mortgages fell to 6.36 percent from 6.63 percent.

Analysts say the Fed's moves to buy up mortgage debt are designed to reduce the an unusually large difference, or spread, between mortgage rates and yields on government debt. Falling interest rates mean consumers could suddenly find extra dollars in their pockets at a time when they have sharply cut back on spending amid rising unemployment and declining household wealth.

However, many experts believe that the interest rate cuts alone won't be enough to jump-start the economy.