how are interest rates determined 
the interest rate charged by banks is determined by a number of factors such as the state of the economy a country s central bank e g the federal reserve in the u s sets the interest rate which each bank uses to determine the apr range they offer 4 when the central bank sets interest rates at a high level the cost of debt rises when the cost of debt is high it discourages people from borrowing and slows consumer demand interest rates tend to rise with inflation to combat inflation banks may set higher reserve requirements tight money supply ensues or there is greater demand for credit in a high interest rate economy people resort to saving their money since they receive more from the savings rate the stock market suffers since investors would rather take advantage of the higher rate from savings than invest in the stock market with lower returns businesses also have limited access to capital funding through debt which leads to economic contraction economies are often stimulated during periods of low interest rates because borrowers have access to loans at inexpensive rates since interest rates on savings are low businesses and individuals are more likely to spend and purchase riskier investment vehicles such as stocks this spending fuels the economy and provides an injection to capital markets leading to economic expansion while governments prefer lower interest rates they eventually lead to market disequilibrium where demand exceeds supply causing inflation when inflation occurs interest rates increase which may relate to walras law the average interest rate on a 30 year fixed rate mortgage in february 2024 this is up from 6 50 a year earlier and 3 89 two years earlier 5interest rates and discriminationdespite laws such as the equal credit opportunity act ecoa that prohibit discriminatory lending practices systemic racism prevails in the u s there is evidence proving that white people get approved more often for mortgages data reported under the home mortgage disclosure act the most comprehensive publicly available information on mortgage market activity showed that black hispanic white and asian applicants were denied conventional mortgage loans in 2022 16 4 11 1 and 9 2 of the time respectively denial rates for white applicants on the other hand were much lower at 5 8 6there is also data suggesting that race impacts interest rates realtor com drawing on mortgage data from 2018 and 2019 discovered that homebuyers in predominantly black communities are offered mortgages with interest rates that are 13 basis points higher than homebuyers in white communities 7evidence of interest rate discrimination with mortgages has been confirmed by other sources including harvard university and think tank the urban institute which claimed in 2022 that the average black homeowner gets charged an interest rate 33 basis points higher than the average white homeowner and pays about 250 more per year in interest 89not everybody agrees with these findings a study by economists at the federal reserve board concluded that no race gets preferential treatment leading its authors to speculate that reporting of disparities elsewhere may be down to black and hispanic borrowers tending to choose slightly higher interest rates in return for lower up front costs 10the federal reserve board believes discrimination is improving and credits this in part to a rise in automated underwriting and stricter enforcement of the fair housing act and the ecoa 11