Rates & Terms
Canada's Prime Rate, Explained
Canada's prime rate explained: what it is, how it tracks the Bank of Canada policy rate, and how prime-based mortgage and HELOC payments move when it changes.
In Canada, the prime rate is the base interest rate a bank charges its most creditworthy customers, and it is the anchor for most variable-rate borrowing. Variable mortgages are quoted as prime plus or minus a spread, while home equity lines of credit are usually quoted as prime plus a margin. Prime itself moves when the Bank of Canada changes its policy rate, which is why a central bank announcement can reach your payment within days.
Prime is not a law or a single national figure. Each lender sets its own prime, and while the major banks usually move together, the exact number can differ slightly between institutions. That small gap matters when a discount is advertised as a spread against prime, because the spread is only half of the equation.
Where prime comes from
Prime is a commercial decision by each lender. Banks fund short-term lending with deposits and wholesale money whose cost tracks the overnight rate, and they set prime to cover that cost plus a margin. When the Bank of Canada raises or lowers its target for the overnight rate, lenders adjust prime to keep that margin steady.
The result is a rate that closely follows the policy rate but is not identical to it. Prime is higher than the overnight rate because it includes the lender's funding and business costs. You can compare the current policy rate and prime side by side on the Bank of Canada's interest rate pages.
Prime versus the policy rate
| Rate | Who sets it | What it applies to | How it moves |
|---|---|---|---|
| Policy rate | Bank of Canada | Overnight lending between institutions | On scheduled announcement dates |
| Prime rate | Each lender | Variable loans, lines of credit | Usually in step with the policy rate |
| Variable mortgage | Lender pricing | Your mortgage | Prime plus or minus a spread |
The Bank of Canada policy rate guide explains how the central bank's decisions travel through prime to your mortgage, and why fixed rates take a different route.
How prime-based mortgages are priced
A variable mortgage rate is expressed as a spread from prime, for example prime minus a discount for a strong borrower or prime plus a margin for a higher-risk file. The spread is negotiated at the start and typically stays fixed for the term, while prime moves underneath it. If prime falls, a mortgage at prime minus a discount falls with it, and vice versa.
Because the spread is part of the deal, two borrowers with the same prime can pay different rates. That is why comparing only the headline variable rate is misleading without also checking the discount and the terms attached to it. The fixed vs variable comparison puts the two structures side by side.
How a prime change reaches your payment
When prime moves, your lender passes the change through according to your contract. Variable-rate mortgages with adjustable payments see the payment change so the amortization stays on track. Fixed-payment variable mortgages keep the payment steady and let the amortization stretch or shrink instead. Read the disclosure in your mortgage agreement so you know which one you have.
Use the mortgage payment calculator to see what a new prime-based rate means for your payment, and the HELOC payment calculator if you also carry a home equity line of credit.
Prime and home equity lines of credit
HELOCs are almost always priced as prime plus a margin, and unlike a mortgage, many are interest-only during the draw period. That means a prime change moves your required payment immediately and by the full amount of the change, with no amortization cushion to absorb it. Because the balance is revolving, the effect of a rate rise can compound quickly if you are carrying a large balance.
For how the product works and how to compare it with a fixed home equity loan, see the home equity line of credit guide.
Why prime matters at renewal and when switching
At renewal, your lender prices your new term against the prime of the day. If prime has risen since you signed, a variable renewal will reflect that, even if your original discount is carried forward. If prime has fallen, the reverse is true, and it can be worth confirming that your lender has actually applied the lower prime rather than an outdated one.
When switching lenders, the new lender's prime becomes the base for your rate, so a slightly lower prime at one institution can offset a smaller discount. Compare the all-in rate and the contract terms, not the discount in isolation. Switching mid-term can trigger a penalty, so time the move to your renewal date where possible.
How to find the current prime rate
Start with the Bank of Canada's published interest rate tables, which list the policy rate and the prime business rate the major banks use. Then check your own lender's website or a recent statement, because the rate that applies to you is the one your lender publishes, and it may lag a policy change by a day or two.
If you are comparing offers, record the prime each lender uses on the same day, along with the spread they are offering. Comparing a discount at one bank against a different prime at another without normalising the base is a common way to misread which offer is actually cheaper.
What to confirm before you sign
- The exact prime your lender uses, and whether it has historically tracked the major banks.
- The spread you are offered, in writing, and whether it is fixed for the term.
- Whether your payment or your amortization adjusts when prime changes.
- How much notice the lender gives before a payment change takes effect.
- Whether converting to a fixed rate later triggers a penalty or fee.
Prime is a moving reference, not a promise. Confirm the current prime and policy rate on the Bank of Canada website, and confirm the spread and the contract terms with your lender, before you rely on any quoted number.
Frequently asked questions
What is the prime rate in Canada right now?
Prime changes over time and differs slightly between lenders, so there is no single fixed answer. The major banks usually publish the same prime, which tracks the Bank of Canada policy rate. For the current figure, check the Bank of Canada's interest rate pages and your own lender's published prime, then confirm how it applies to your contract.
Is prime the same as the Bank of Canada rate?
No. The policy rate is the Bank of Canada's target for overnight lending between institutions. Prime is set by each lender and is higher, because it includes the lender's funding and business costs. Prime usually moves by the same amount as the policy rate, shortly after an announcement, but the two numbers are not equal.
Why is my variable mortgage rate prime minus a discount?
Lenders compete for borrowers by offering a discount off prime, especially for well-qualified files. Your rate is the spread you negotiated, so prime minus a discount means you pay less than prime. The discount is usually fixed for your term while prime moves underneath it. Confirm your exact spread in your mortgage agreement.
Do HELOC payments change when prime changes?
Yes, usually immediately. Most home equity lines of credit are priced at prime plus a margin and are interest-only during the draw period, so a prime change alters your required payment by the full amount of the change. There is no amortization to absorb it, so a rising prime can raise your payment quickly if you carry a large balance.