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Prime rate in Canada

Key Takeaways

1. Canada's prime rate as of today is currently at 7.20%, 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 flat in March, but signs point to increased activity later in the spring as highly motivated buyers come in from the sidelines, spurred by the prospect of rate cuts later this year.

The prime rate in Canada today, April 22, 2024, is currently 7.2%. 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 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.

April 2024: Mortgage market update

The first several months of 2024 have been volatile for the housing market in Canada, but signs are emerging that housing market activity could pick up steam as expectations grow for rate cuts from the Bank of Canada as early as the summer. Bond yields remain unpredictable, rising and falling at a dizzying pace as jumpy investors reactto various economic reports out of Canada, the United States and around the world. Following a brief period of decline in December and January, they have been largely on the rise for the last couple of months, in part due to investors’ fears about the US Federal Reserve’s “higher for longer” rate stance. Both fixed and variable mortgage rates are historically elevated at this time. If you’re shopping around for a mortgage rate in Canada, here’s some information you should know.

  • Real estate update: On April 12, 2024, the Canadian Real Estate Association (CREA) came out with the most recent statistics for the Canadian housing market for the month of March 2024. The latest data shows that the housing market has remained relatively flat. Some 42,633 homes changed hands across Canada in March, marking just a 1.7% annual increase, and beating February’s total by just 0.5%. On a monthly basis, new listings fell by -1.6%, which, in turn, caused buying conditions to tighten slightly. March’s sales-to-new-listings ratio (SNLR) rose to 57.4% from the previous month’s 55.6%, though still remaining balanced. CREA uses the SNLR to gauge competition in a given market. A ratio between 45 - 65% indicates a balanced market, with above and below that threshold reflecting sellers’ and buyers’ markets, respectively. Looked at from an annual point of view, home supply is recovering from the record lows of 2023, with the 76,021 residential properties that came to market representing a 10% year-over-year increase. New listings were not enough to prevent price growth, however, as the national average home price in Canada rose by 2% to $698,520.

    more: Canadian home sales were flat in March, but rate cut boost expected

  • CPI update: The latest Consumer Price Index (CPI) reading for the month of March from Statistics Canada indicates that headline inflation came in at 2.9%, up by 0.1% from the previous month. This slight increase can be attributed in large part to annual increases in gas prices, although shelter costs (which include mortgage interest and rents) were the biggest contributor, rising by 6.5% annually. Food inflation continues to soften, however, coming in at just 1.9%. Most importantly for the Bank of Canada, the two metrics it watches most closely and that drive its rate decisions, namely “core” median and trim inflation, both declined to 2.8% and 3.1%, respectively. While the Bank wants to see both of these metrics fall below 3%, overall, this latest CPI report boosts the idea that we could see rate cuts as early as the summer. That said, April’s CPI report will be released before the Bank’s next rate announcement on June 5, 2024, and it could affect how the Bank chooses to proceed.

Read more: Canadian CPI comes in at 2.9% in March

2024 Housing market forecast

Given the growing expectations of rate cuts and pent-up buyer demand, CREA has updated its forecast for 2024 and 2025. 

It expects that some 492,083 homes will change hands in 2024, an increase of 10.5% from 2023. Sales growth is forecast to be most noticeable in markets where housing demand has remained consistently robust, like Alberta. However, even markets that suffered from historically low demand, such as Ontario, British Columbia and Nova Scotia are expected to enjoy growth as well. The average home price in Canada is predicted to climb by 4.9% to $710,468 in 2024.

The housing market is projected to continue its recovery in 2025, with sales expected to hit 530,494 residential properties (an annual increase of 7.8%, while the average home price in Canada is expected to climb by 7% to $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 third announcement of the year on April 10, it chose to hold the target for the overnight rate steady at 5% for the sixth consecutive time, citing a stalled economy and softening labour market conditions as among the main drivers of its decision. It noted that inflation remains above its target of 2%, and indicated that rates will need to remain higher for longer while it ensures that inflation is well and truly tamped down. With the overnight lending rate remaining unchanged, the prime rate will stay at its current level of 7.2%.

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: April 10, 2024 Bank of Canada announcement

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