Mortgage applications fell 5.5 percent in the past week, to the lowest level in more than 12 years, according to a weekly report from the Mortgage Bankers Association released Wednesday.

The plunge follows a slight increase in interest rates. Refinance and home purchase applications dropped 4 percent and 6 percent, respectively, as investors wait for word from the Federal Reserve on whether it will reduce its bond-buying activity.

"It is a discordant note compared to the more positive data we are seeing in other parts of the economy, including the job market reports and industrial production," said Michael Fratantoni, the association's vice president of research and economics. "Credit tightening could be part of it, rates another part."

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The average contract interest rate for 30-year fixed mortgages with conforming loan balances ($417,000 or less) rose to 4.62 percent from 4.61 percent, a small move but the highest level since September. The average rate for a five-year adjustable rate mortgage jumped to 3.20 percent from 3.11 percent. More borrowers have been heading to ARMs lately, seeking lower rates amid rising housing prices.