Prime rate in Canada

The prime rate in Canada today, May 20, 2025, is currently 4.95%. 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.

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.

May 2025: Mortgage market update

The Bank of Canada (BoC) has maintained its overnight lending rate at 2.75% as of April 2025. Since June 2024, the BoC has lowered its benchmark rate by a total of 225 basis points from a peak of 5%.

Despite inflation slowing to 2.3% in March, it remains above the BoC's 2% target, prompting the central bank to pause its rate-cutting cycle. However, ongoing global trade uncertainties, particularly related to tariffs, continue to impact economic forecasts and inflation, leaving the door open for potential future rate adjustments.

• Real estate update: The Canadian Real Estate Association (CREA) reported that the Canadian housing market remained subdued in April 2025, with 44,300 homes exchanging hands, marking a 9.8% decline compared to April 2024 and virtually unchanged from March’s historic 16-year low. According to CREA’s Senior Economist, Shaun Cathcart, the key concern is no longer high interest rates but the growing concerns over tariff-driven inflation. There’s also a growing risk that economic strain could lead to more homeowners being forced to sell — a shift that hasn’t occurred in decades. New listings totalled 94,234 in April, down 1% from March but up 1.2% year over year. With sales flat, the national sales-to-new listings ratio (SNLR) ticked up to 46.8% — still within the CREA-defined balanced ratio of 45% and 65%. The national average home price fell 3.9% annually to $679,866, and the MLS Home Price Index, which offers a clearer view of typical home values, declined 1.2% month over month and 3.6% from last year. Despite these improved affordability conditions, buyers remain cautious. Economists expect that the Bank of Canada can cut interest rates two more times this year, but rising inflation could hinder future rate relief. Fixed mortgage rates have mostly held firm, with bond markets showing little movement since mid-April.

  Read more: April Canadian home sales flat as buyers stick to the sidelines
  
  
• CPI update: In March 2025, Canada’s inflation rate unexpectedly slowed to 2.3% year-over-year, down from 2.6% in February. This drop caught analysts off guard, especially since the winter GST tax holiday, which had temporarily lowered prices on food, alcohol, and children’s items, came to an end. Despite these prices returning, lower gas and travel costs helped drive the CPI down. Gasoline prices fell by 1.6%, air travel prices plunged 12% year-over-year, and travel tour prices decreased by 4.7%. However, food prices continued to rise, with grocery store and restaurant prices each increasing by 3.2%. Excluding food, the CPI growth rate would have been closer to 2.1%, in line with the Bank of Canada’s target. Shelter costs rose by 3.9% year-over-year, majorly driven by the moderate 7.9% increase in mortgage interest costs. Although still high, MIC was lower from the 9% rise in February and the 10.2% increase in January. The drop resulted from the Bank of Canada’s interest rate cuts, which have provided relief to borrowers. Rent prices continued their upward trajectory, rising by 5.1%. 

Read more- March CPI comes in surprisingly low at 2.3%

Canada housing market forecast for 2025

CREA has revised its housing market forecasts for 2025 and 2026, reflecting a more cautious outlook due to economic uncertainties, particularly the potential impact of a trade war. For 2025, CREA now expects 482,673 residential properties to be sold, a significant drop from the 8.6% growth forecast initially in January. The national average home price is projected to decrease by 0.3%, bringing it to $687,898, which is $30,000 lower than previously expected. In 2026, CREA anticipates a slight recovery, with home sales expected to increase by 2.9% to 496,487 units. However, this would still fall short of the half-million mark for the fourth consecutive year. Historically, national home sales have surpassed 500,000 units seven times since 2007. The national average home price is projected to rise by 1.2% to $696,074. Given the continued uncertainty surrounding interest rates and economic conditions, CREA's forecast remains subject to significant risks, with its next update scheduled for July 15, 2025.

What the latest U.S. tariffs mean for Canadian borrowers

On April 2, 2025, after months of uncertainty, the U.S. clarified its stance on tariffs. While Canada was exempt from the 50% reciprocal tariffs that the U.S. imposed on countries with trade surpluses, it still faces a 25% tariff on non-CUSMA imports and tariffs on steel, aluminum, and foreign cars and parts.

These tariff announcements have led to a sharp drop in bond yields, including Canada’s 5-year government bond yield, which fell to 2.488% as of April 3, 20225 — its lowest level since 2022. For Canadian borrowers, this means lower borrowing costs, with fixed mortgage rates now available as low as 3.74% for insured mortgages and 3.99% for uninsured mortgages.

The Bank of Canada (BoC), initially expected to cut its key interest rate in response to economic challenges, may instead decide to hold rates steady in its upcoming rate announcement on April 16. The BoC has stated that it will continue to monitor the global economic situation closely and adjust its policy as needed, particularly in response to ongoing tariff impacts.

The broader economic instability caused by U.S. tariffs and the resulting market volatility is leading to a slowdown in the housing market. February 2025 data from the Canadian Real Estate Association (CREA) showed a 10.4% decrease in home sales year-over-year.

Also read: How could 25% US tariffs impact Canadian mortgage rates?

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

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?

From early 2022 to the first half of 2023, the prime rate steadily increased in response to the Bank of Canada’s efforts to control high inflation. During this period, the Bank of Canada implemented a series of 10 rate hikes, pushing its Overnight Lending Rate to 5% by mid-2023. This resulted in the prime rate rising to 7.2%.

However, the trend reversed in June 2024. By March 12, 2025, the Bank had implemented seven consecutive rate cuts, reducing its benchmark rate from 5% to 2.75% — a total reduction of 225 basis points. In April 2025, the BoC held its overnight rate steady at 2.75%. As a result of these cuts and the recent hold, the prime rate has remained steady at 4.95%, offering much-needed relief to borrowers.

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)

Bank prime rates

• Tangerine Prime Rate 
• TD Bank Prime Rate 
• Scotiabank Prime Rate 
• HSBC Prime Rate 
• Bank of Montreal Prime Rate 
• CIBC Prime Rate 
• RBC Royal Bank Prime Rate