March 25 (Reuters) - The interest rate on the most

popular U.S. home loan surged by the most in 11 months last week

to the highest since October as rising oil prices from the war

in Iran fanned inflation fears, forcing up yields on the

Treasury bonds most influential to mortgage rates.

The Mortgage Bankers Association said on Wednesday the

contract rate on a 30-year, fixed-rate mortgage rose 13 basis

points to 6.43% in the week ended March 20, the highest in

nearly six months.

After starting the month at their lowest level since

September 2022, mortgage rates since the U.S. and Israel

launched air attacks against Iran have climbed by 34 basis

points in three weeks, and last week's increase marked the

largest weekly rise since April.

The MBA's weekly applications index tumbled 10.5% last week

to 310.7, the lowest since January, led by a 14.6% drop in

applications to refinance existing loans. Applications for loans

to purchase a property slid 5.4%.

The yield on the 10-year U.S. Treasury note, the government

security most influential to mortgage rates, has shot higher

since the war began and Iran effectively closed the Strait of

Hormuz, choking off the flow of about a fifth of the world's

petroleum. Benchmark global crude oil prices have shot up from

about $75 a barrel in late February to around $100 a barrel now.

The 10-year Treasury yield has climbed from 3.96% on the

Friday before the attacks began on February 28 to 4.39% on

Tuesday, matching its highest end-of-day level since July.

Bond and interest rate futures markets have repositioned for

the prospect that the U.S. Federal Reserve will hold off on any

interest rate cuts this year. Prior to the start of the war the

market had expected at least one 25-basis-point reduction this

year.

"The threat of higher for longer oil prices continued to

keep Treasury yields elevated, and mortgage rates finished last

week higher," said Joel Kan, MBA's vice president and deputy

chief economist.

"Given this period of increasing mortgage rates and

diminishing refinance incentives, refinance applications

decreased 15 percent as applications across all loan types

declined. Purchase applications were also down last week, as

higher mortgage rates, coupled with affordability constraints

and economic uncertainty, pushed some potential homebuyers to

the sidelines."