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Prime rate in Canada

Key Takeaways

1. Canada's prime rate as of today is currently at 6.45%, 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 August, 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, July, and September rate cuts as well as further rate cuts anticipated later this year.

The prime rate in Canada today, October 13, 2024, is currently 6.45%. 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.

Breaking news: Canadian mortgage reform update

On September 16, 2024, the federal government announced sweeping changes to mortgage qualification rules for first-time home buyers, as well as those purchasing newly-constructed homes.

As of December 15, 2024:

  • 30-year amortizations will be available for all first-time home buyers, regardless of whether they have an insured mortgage. These extended amortizations are also available for any purchase of new construction.

  • The maximum purchase price for an insured mortgage (where less than 20% down is paid) will be increased to $1.5 million, from the current $1 million.

These are some of the most impactful mortgage reforms announced since 2012, and are anticipated to increase first-time home buyers’ affordability and access to the housing market. 

Learn more about these new mortgage rule changes on the Ratehub.ca blog

October 2024: Mortgage market update

Prime rate forecast

It is widely expected that Canada's prime rate will continue to lower throughout the remainder 2024 and into 2024, alongside with anticipated rate cuts to the Bank of Canada's (BoC) Overnight Lending Rate.

The central bank has already implemented three rate cuts, at a quarter of a percentage point each, in June, July, and September of this year, bringing its trend-setting benchmark rate down by a cumulative 75 basis points, currently at 4.25%. Given inflation in Canada has now fallen to within the BoC's target range of 2%, and the US Federal Reserve has also started to reduce its policy rate, it's expected at least two more cuts will come in 2024, with potentially another four to five next year. While it's difficult to predict what size these rate cuts will be, Canada's prime rate could potentially fall below 5%.

  • Real estate update: On September 16, 2024, the Canadian Real Estate Association (CREA) came out with the most recent statistics for the Canadian housing market for the month of August 2024. The latest data shows that the market was relatively slow in August, likely a result of buyers holding out for lower rates now that the Bank of Canada is in a rate cutting cycle. The 39,573 homes that traded hands represented a mere 1.3% increase from July and a -2.1% decrease compared to the same period last year. Sellers, however, continue to turn out in force, with new listings up by 18.8% from August 2023. As a result, August’s sales-to-new-listings ratio (SNLR) came in at 53%, 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 a price decline, with August’s national average home price of $649,100 up by just 0.1% on an annual basis (and less than July’s figure of $663,317).

    Read more: Canadian real estate remained in “holding pattern” in August

    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 sixth announcement of the year on September 4, it carried out the third 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 4.5% to 4.25%, the prime rate will fall to 6.45%.

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)

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Prime Rate in Canada: Frequently asked questions

What is Canada's current prime rate?


What will the prime rate in Canada be in 2024?


How is the prime rate related to the Bank of Canada’s key interest rate?


Why is TD’s mortgage prime rate higher than the mortgage prime rate of the other Big 5 Banks?


WATCH: September 4, 2024 Bank of Canada announcement

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