Last week's banking sector turmoil had at least one silver lining for U.S. home buyers: lower mortgage interest rates.

Interest rates on the most popular U.S. home loan tumbled by the most in four months last week after the failure of Silicon Valley Bank and emergency measures taken to shore up the wider banking system drove a mad dash by investors to the safety of government bonds, the Mortgage Bankers Association said Wednesday.

The resulting drop in yields on the Treasury notes that act as benchmarks for home loans pushed the average rate on 30-year fixed-rate mortgages down by 0.23 percentage point to 6.48% for the week ended March 17 from 6.71% the week before. It was the largest weekly drop since a decline of the same magnitude in mid-November.

The lower rates drove a jump in loan application volumes, with applications for both new purchases and refinancing of existing loans hitting a six-week high, MBA said.

"Both purchase and refinance applications increased for the third week in a row as borrowers took the opportunity to act, even though overall application volume remains at relatively low levels," MBA Vice President and Deputy Chief Economist Joel Kan said in a statement.

In fact, the drop in residential borrowing costs of 0.31 percentage point in the last two weeks was far more modest than might have been expected given that the yield on the 10-year Treasury note, which acts as a benchmark for mortgage rates, tumbled more than half a percentage point over the same window. It was the largest drop - outside of the panic in the early days of the COVID-19 pandemic - since the financial crisis in 2008.

Kan attributed that to increased volatility in the market for mortgage-backed securities, which prevented consumer borrowing costs from dropping even more. The spread between the 30-year fixed and 10-year Treasury remained wide at around 3 percentage points compared with a more typical spread of 1.80 percentage points, he said.

Mortgage rates had soared to more than 7% last October as the Federal Reserve raised its benchmark policy rate in 2022 at the fastest pace in 40 years to combat inflation. The interest rate-sensitive housing sector has borne the brunt of the Fed's actions, though sales of existing homes increased in February for the first time in about a year.

With the U.S. central bank seen as likely to raise interest rates again later on Wednesday and with market turbulence having subsided so far this week, it's not clear how long the recent interest rate relief will last.