Prime rate in Canada
Key Takeaways
1. Canada's prime rate as of today is currently at 5.20%, 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 saw a dip in activity in January, with home sales decreasing by 3.3% from December.
The prime rate in Canada today, February 20, 2025, is currently 5.2%. 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 |
| January 29, 2025 | 5.20% | -0.25% |
| December 11, 2024 | 5.45% | -0.50% |
| October 23, 2024 | 5.95% | -0.50% |
| September 4, 2024 | 6.45% | -0.25% |
| 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.
WATCH: January 29, 2025 Bank of Canada announcement
February 2025: Mortgage market update
It is widely expected that Canada's prime rate will continue to lower in 2025, in tandem with anticipated rate cuts to the Bank of Canada's (BoC) Overnight Lending Rate.
The central bank has already enacted six rate cuts from June 2024 to January 2025, bringing its trend-setting benchmark rate down by a cumulative 200 basis points, currently at 3.00%. With inflation easing to 1.8% in December — near the BoC’s 2% target — markets anticipate at least two more quarter-point cuts in 2025. If additional cuts occur as expected, Canada’s prime rate could dip below 5% later this year. However, potential U.S. import tariffs remain a key risk that could alter the central bank’s course.
- Real estate update: On February 18, 2025, the Canadian Real Estate Association (CREA) revealed a cooler start to the year for Canadian real estate, primarily due to U.S. tariff concerns weighing on buyer and seller sentiment. A total of 26,650 homes changed hands in January, down 3.3% from December yet 2.9% above the same month in 2024 – a sign of moderate annual growth despite near-term uncertainty. Sellers introduced 83,450 new listings to the market, representing an 11% monthly and 22.7% annual increase, one of the largest month-on-month surges in recent decades. The influx of listings raised months of inventory to 4.2, providing welcome breathing room for buyers. Average home prices edged up by 1.1% year-over-year to $670,064, while the MLS Home Price Index (HPI) stayed nearly flat from December. With the sales-to-new-listings ratio (SNLR) at 49.3%, the market now sits in the lower range of balanced conditions, offering slightly more negotiation power to buyers. CREA cautions that ongoing trade-related headwinds and upcoming Bank of Canada rate decisions remain critical variables that will shape the housing landscape in the months ahead.
Read more- Canadian real estate sales drop in January due to tariff fears
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CPI update: According to Statistics Canada’s latest Consumer Price Index (CPI) report, Canada’s annual inflation rate increased to 1.9% in January 2025, up by 0.1% in December 2024. The report notes that the GST tax holiday from December 14, 2024, to February 15, 2025, helped suppress the headline inflation rate by easing prices on items such as alcoholic beverages, restaurant meals, and children’s products. Without this temporary relief, inflation would have been around 2.6%, a sharp increase from September’s 1.5%. Mortgage interest costs, which make up roughly 30% of the overall CPI, moderated to a 10.2% year-over-year increase as a result of the Bank of Canada’s recent rate cuts. Rent prices decreased by 0.1% from December, the first monthly decline since 2023, though they remain 6.3% higher than last year. Additionally, core inflation measures like the CPI trim and CPI median edged up to 2.7% from 2.5% and 2.6%, respectively. Given these developments, economists expect the Bank of Canada to maintain its current rate at the upcoming policy meeting on March 12, rather than implementing further cuts.
Canada housing market forecast for 2025
The Canadian Real Estate Association (CREA) recently shared its 2025 housing market forecast, highlighting a rebound in activity fueled by pent-up demand, lower borrowing costs, and a seasonal surge in listings. CREA forecasts 532,704 residential property transactions in 2025, reflecting an 8.6% increase from 2024 and an upward revision from the previous estimate of 6.6%. By 2026, sales are expected to rise another 4.5% to 556,662. The national average home price is projected to grow 4.7% year-over-year to $722,221 in 2025 and by another 3.3% to $746,379 in 2026. Regional differences will also remain significant. British Columbia and Ontario are expected to see strong sales growth due to lower current sales volumes and higher supply, while Alberta and Saskatchewan will likely experience price-driven demand, fueled by low inventory and affordable housing.
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 started reversing in June 2024. By January 29, 2025, the Bank had implemented six consecutive rate cuts, reducing the benchmark rate from 5% to 3.00% — a total reduction of 200 basis points. As a result of these cuts, the prime rate will fall to 5.20%, providing 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)