Prime rate in Canada
Key Takeaways
1. Canada's prime rate as of today is currently at 6.7%, influenced by the Bank of Canada's policy interest rate, also known as the target for the overnight rate.
2. The prime rate impacts variable loans and lines of credit, including variable-rate mortgages. When the Bank of Canada changes its overnight rate, lenders typically adjust their prime rates accordingly.
3. The housing market was relatively quiet in June, although there was a slight monthly increase, but signs point to increased activity later in the year as highly motivated buyers come in from the sidelines, spurred by the Bank of Canada's June rate cut and further rate cuts anticipated later this year.
The prime rate in Canada today, July 26, 2024, is currently 6.7%. The prime rate, also known as the prime lending rate, is the annual interest rate Canada’s major banks and financial institutions use to set interest rates for variable loans and lines of credit, including variable-rate mortgages.
Prime rate vs. Bank of Canada target for the overnight rate
Canada Prime Rate Changes: 2010 - 2024
| Effective Date | Prime Rate | Change |
| July 24, 2024 | 6.70% | -0.25% |
| June 5, 2024 | 6.95% | -0.25% |
| July 12, 2023 | 7.20% | 0.25% |
| June 8, 2023 | 6.95% | 0.25% |
| January 25, 2023 | 6.70% | 0.25% |
| December 8, 2022 | 6.45% | 0.50% |
| October 27, 2022 | 5.95% | 0.50% |
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The prime rate is primarily influenced by the policy interest rate set by the Bank of Canada (BoC), also known as the BoC's target for the overnight rate. While these rates are not the same, they are closely related. When the Bank of Canada changes the target for the overnight rate, lenders will generally adjust their prime rates within a few days.
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What is the prime rate?
When you apply for a loan with a variable interest rate, your lender will give you an annual interest rate that’s tied to the bank’s prime rate. All kinds of loans are based on this rate, including certain mortgages, car loans, personal lines of credit, and even some credit cards. Think of the prime rate as the anchor these other interest rates are based on. As the prime rate in Canada moves up or down, so too does the rate of interest you pay on your loan.
July 2024: Mortgage market update
The 2024 Canadian housing market has been rather sleepy thus far, as buyers bide their time on the sidelines and await lower rates. With the Bank of Canada having implemented its first policy rate cut since March 2020 on June 5 and taking the policy rate from 5.00% to 4.75%, there is optimism that activity could now pick up.
Variable mortgage rates fell in tandem with the policy rate, and, with anticipation of another rate cut in July running high, further downward movement in mortgage rates is expected.
Fixed mortgage rates are tied to the bond market rather than directly to the Bank of Canada’s rate, and bond yields have fallen to the 3.3% range in the wake of the Bank of Canada’s June rate cut and in response to a number of economic reports from Canada and elsewhere.
That said, when looked at from a historical perspective, both fixed and variable mortgage rates remain elevated. If you’re looking for a mortgage rate in Canada right now, these are some economic factors you ought to be aware of.
- Real estate update: On July 12, 2024, the Canadian Real Estate Association (CREA) came out with the most recent statistics for the Canadian housing market for the month of June 2024. The latest data shows that the market experienced a small but welcome bounce from May to June, likely a result of the Bank of Canada’s -0.25% cut to the Overnight Lending Rate at its June 5 announcement. The 45,654 homes that traded hands represented a monthly increase of 3.7%, though still down by -9.4% compared to the same period last year. Sellers, however, continue to turn out in force, with new listings up by 26% from June 2023. As a result, June’s sales-to-new-listings ratio (SNLR) came in at 53.9%, keeping the country firmly in balanced market territory. CREA considers a ratio between 45 - 65% to indicate a balanced market, with above and below that threshold reflecting sellers’ and buyers’ markets, respectively. An abundance of new listings and relatively slack demand has led to price decline, with June’s national average home price of $696,179 down by -1.6% on an annual basis (and less than May’s figure of $699,117).
Read more: Rate cut leads to small June jump for national home sales - CPI update: The latest Consumer Price Index (CPI) reading for the month of June 2024 from Statistics Canada indicates that headline inflation came in at 2.7%, in line with expectations and down from 2.9% the previous month. This decrease can be attributed in large part to lower gas prices, which rose by just 0.4% in June as compared to 5.6% in May. Durable goods also saw their price slip by -1.8%, which then pulled down the price of the all-items CPI. That said, grocery prices rose for the second month in a row, up by 2.1% compared to 1.5% in May. A major contributor to inflation, shelter costs (including mortgage interest costs and rent costs) saw a drop, coming in at 6.2% in June vs. 6,4% in May. This was largely due to the lower mortgage rates engendered by the Bank of Canada’s June 5th rate cut, which caused mortgage interest costs to fall by -1%, standing at 22.3% in June compared to 23.3% in May. Rent costs, on the other hand, declined by just -0.1%, remaining elevated at 8.8%. Two core inflation measures carefully monitored by the Bank, CPI Trim and CPI median, rose at a slower pace than in previous months, coming in at 2.6% and 2.9%, respectively.
Read more: Canadian CPI lowers to 2.7% in June
2024 Housing market forecast
CREA has now updated its national housing market forecast, taking into account that there are likely to be fewer rate cuts from the Bank of Canada than initially anticipated as well as a rapid growth in supply coupled with sluggish demand.
CREA is now forecasting a total of 492,395 homes to change hands in 2024, up by 6.1% from 2023. This has been revised downward from an earlier forecast that saw a total of 492,083 transactions (a 10.5% increase over 2023).
In 2025, the association is predicting a total of 501,902 home sales, representing a 6.3% increase from 2024, spurred by falling interest rates and rising demand. This projection is down from the earlier forecast of 530,494 home sales (a 7.8% increase over 2023).
CREA expects the national average home price to rise by a total of 2.5% in 2024 to reach $694,393, followed by another 5% increase in 2025, taking it to $729,319. Previously, CREA had been projecting a 4,9% rise in 2024 (for an average home price of $710,120) and a 7% rise in 2025 (for an average home price of $760,120).
How is the prime rate set in Canada?
Each bank sets its own prime rate, but the Big Five Banks usually all have the same prime rate. The prime rate is primarily influenced by the policy interest rate set by the Bank of Canada (BoC), also known as the BoC's target for the overnight rate. When the BoC raises the overnight rate, it becomes more expensive for banks to borrow money, and they raise their respective prime rates to cover the added costs. Conversely when the BoC lowers the overnight rate, banks usually lower their prime rates by the same amount.
Is the prime rate going up in Canada?
As a result of a series of increases in the Bank of Canada's policy interest rate to control historically high inflation rates, the prime rate had also been steadily going up since the beginning of 2022 and into early 2023.
After a conditional pause in rate hikes for most of the first half of 2023, obstinately high inflation and strong Q1 GDP growth incited the Bank to once again resume rate hikes. In its June and July announcements, the Bank raised its key overnight lending rate by 0.25% twice in a row for a total of 10 rate hikes since March 2022, bringing it to 5%. As a result, the Prime rate rose to 7.2%.
Most recently, on the Bank’s fifth announcement of the year on July 24, it carried out the second rate cut in a row after not having done so for over four long years, citing declining inflation in Canada, the US and beyond as the primary driver of its decision. With the overnight lending rate having fallen from 4.75% to 4.5%, the prime rate will fall to 6.7%.
How does the prime rate affect mortgage rates in Canada?
There are two main types of mortgage rates in Canada – fixed and variable. When you get a fixed mortgage rate, you agree to pay the same rate over the entire course of your mortgage term regardless of what happens in the outside market. Fixed mortgages are a good option if you’re worried mortgage rates will go up, or if you want to enjoy the stability of paying the same mortgage rate until it’s time to renew.
When you get a variable mortgage rate, the rate will be expressed as the prime rate plus or minus a certain percentage. When the prime rate in Canada goes up or down, your mortgage rate will go up or down by the same amount. Variable mortgages usually come with a lower rate vs. fixed-rate mortgages when you sign up, but there’s the risk that the rate could go up (or down) during your mortgage term. Many lenders will allow you to convert a variable-rate mortgage to a fixed-rate mortgage at any time, but you will have to pay the fixed rate as of the time you decide to switch.
Let’s look at an example. If the prime rate is 3.0%, and you get a variable-rate mortgage at prime minus 0.8%, your effective interest rate will be 2.2%.
Example 1: Your original mortgage rate
prime rate - discount to prime rate = your mortgage rate
3.00% - 0.80% = 2.20%
The prime rate can rise and fall over time, and variable-rate loans will rise and fall with it. To continue this example, if the prime rate were to increase by 0.25% to 3.25%, the interest rate on your mortgage would rise by the same amount, to 2.45%.
Example 2: Your new rate after prime rate increases during your mortgage term
new prime rate - discount to prime rate = your new mortgage rate
3.25% - 0.80% = 2.45% (new mortgage rate)