Prime rate in Canada

The prime rate in Canada today, April 3, 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.

March 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 seven rate cuts from June 2024 to March 2025, bringing its trend-setting benchmark rate down by a cumulative 225 basis points, currently at 2.75%. While inflation — recorded at 1.9% in January — remains close to the Bank’s 2% target, increasing tariff-related volatility continues to pressure economic forecasts, likely leading to additional rate cuts in 2025.

• Real estate update: Canada’s housing market experienced a sharp slowdown in February 2025, as concerns over new tariffs held buyers on the sidelines. According to the Canadian Real Estate Association (CREA), only 32,195 transactions were recorded in February, a decline of 9.8% from January and 10.4% year over year. The slowdown isn’t limited to buyers — sellers are also holding off, with new listings dropping 12.7% month over month. This decline in fresh supply slightly tightened market conditions, causing the sales-to-new-listings ratio (SNLR) to rise from 48.3% in January to 49.9%. Meanwhile, overall inventory increased to 4.7 months, moving closer to a balanced market where buyers have more options. As sales slow, home prices are declining, with the national average dropping to $668,097, down 3.3% year over year and 4.6% from January. However, for buyers still in the market, falling mortgage rates are making home financing more affordable. The Bank of Canada has cut rates seven times, bringing its benchmark rate to 2.75%, leading to variable mortgage rates as low as 3.95%. Fixed rates, on the other hand, have tumbled to 3.89% in response to lower bond yields. As the market moves into spring 2025, the question remains — will lower borrowing costs be enough to spur demand, or will economic concerns continue to keep buyers and sellers on the sidelines?

Read more- Canadian home sales plunge 10% in February due to tariff fears

• CPI update: According to Statistics Canada’s latest Consumer Price Index (CPI) report, Canada’s annual inflation rate increased to 2.6% in February 2025, up by 0.7% in January. The increase was largely driven by the reapplication of GST/HST on previously exempt goods as the two-month tax break came to an end on February 15. Among the largest contributors to February’s high inflation were travel tour prices, which spiked 18.8% year-over-year, and passenger vehicle insurance premiums, which increased 7.5%. However, gasoline price growth slowed to 5.1%, easing from 8.6% in January. Shelter costs also continued to moderate as mortgage interest costs grew at a slower pace of 9% annually. Rent price increases also showed signs of easing, coming in at 5.8% year-over-year. Despite some signs of moderation, core inflation measures — stripping out volatile components — remained sticky, with both CPI median and CPI trim rising to 2.9% from 2.7% in January. Given the latest inflation data and ongoing U.S. tariff threats, economists are now speculating that the BoC may need to pause further rate cuts in the near term.

Read more: February CPI shoots to 2.6% following end of tax holiday

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 March 12, 2025, the Bank had implemented seven consecutive rate cuts, reducing the benchmark rate from 5% to 2.75% — a total reduction of 225 basis points. As a result of these cuts, the prime rate will fall to 4.95%, 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)

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