Mortgage rates are finally falling, and just saw their biggest weekly drop in the past year. The average interest rate for a 30-year fixed-rate mortgage in the past week was 6.35%, according to Freddie Mac , down from 6.5% a week earlier.

That's the lowest average since last October. Rates have been above 6.5% for most of the last year, climbing above 7% in January.

"Mortgage rates are headed in the right direction and homebuyers have noticed, as purchase applications reached the highest year-over-year growth rate in more than four years," said Sam Khater, Freddie Mac's chief economist.

As rates dropped, borrower demand surged. Applications to buy a home and to refinance were both up on a weekly and annual basis, according to the Mortgage Bankers Association.

Refinances made up nea

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