Prime rate in Canada
Key Takeaways
1. Canada's prime rate as of today is currently at 5.45%, 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 renewed activity in November, with home sales increasing by 26% year-over-year. This surge is largely driven by the Bank of Canada's four consecutive rate cuts this year, and further rate cuts expected in 2025 are likely to keep buyer demand strong in the coming months.
The prime rate in Canada today, January 13, 2025, is currently 5.45%. 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 |
| 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: December 11, 2024 Bank of Canada announcement
December 2024: 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 five rate cuts from June to December in 2024, bringing its trend-setting benchmark rate down by a cumulative 175 basis points, currently at 3.25%. Given inflation in Canada has now fallen to the BoC's target range of 2%, it's expected that at least a few more rate cuts might come next year. While it's difficult to predict what size these rate cuts will be, Canada's prime rate could fall below 5% in 2025.
- Real estate update: On December 16, 2024, the Canadian Real Estate Association (CREA) reported a dramatic rebound in Canada’s housing market, driven by recent rate cuts. National home sales rose 26% year-over-year to 37,855 units in November, marking the third consecutive month of growth. This resurgence was fueled by lower borrowing costs, which have brought buyers back into the market. The national average home price climbed 7.4% year-over-year to $649,411, with a 0.9% monthly increase. The National Composite MLS Home Price Index (HPI), a more stable measure that removes the extremes, rose 0.6% from October — the largest monthly gain in over a year. New listings increased by 2.4% year-over-year to 56,242 homes but declined by 0.5% month-over-month, tightening inventory levels further. The sales-to-new-listings ratio (SNLR) rose to 59.2%, nearing the seller’s market threshold, as CREA defines a balanced market as having an SNLR between 45% and 65%. Inventory levels dropped to just 3.7 months, the lowest in 14 months and significantly below the long-term average of 5.1 months. With additional rate cuts anticipated in 2025 and new mortgage rules increasing affordability for buyers, experts predict a strong winter market and an exceptionally competitive spring selling season.
Read more: National home sales rise 26% in November
- CPI update: According to Statistics Canada’s latest Consumer Price Index (CPI) report, Canada’s annual inflation rate dipped to 1.9% in November, down slightly from 2% in October. The slowdown reflects the continued effect of the Bank of Canada’s recent interest rate cuts, which brought its benchmark overnight rate to 3.25% in December, down from 5% earlier this year. Mortgage interest costs, one of the biggest drivers of inflation, continued to rise but at a slower pace, increasing 13.2% compared to 14.7% in October. This easing contributed to overall shelter inflation slowing to 4.6%, though rent prices remained elevated, climbing 7.7% year-over-year. At the same time, food prices rose 2.6%, a slight improvement from 2.7% in October but still a significant increase of 19.6% compared to 2021 levels, continuing to strain household budgets. Meanwhile, gas prices fell by 0.5%, a far slower decline than the 4% drop recorded the month prior. Seasonal factors, such as Black Friday sales, also played a role in lowering prices across categories like household goods, clothing, and travel services. However, core inflation measures — which strip out volatile components — remained steady at 2.7% (CPI Trim) and 2.6% (CPI Median). Looking at these persistent underlying pressures, analysts expect the Bank of Canada to proceed with smaller, incremental rate cuts in early 2025.
Read more: Canadian CPI falls to 1.9% in November
November 2024 Fed rate cut announcement: Key insights
On November 7, 2024, the US Federal Reserve announced a quarter-point reduction in its benchmark interest rate, marking its second consecutive cut since September. This latest decision is part of the Fed's ongoing efforts to manage inflation, which has fallen from a peak of 9.1% in June 2022 to 2.4% as of September 2024.
Looking ahead, the Fed's rate-cutting strategy faces uncertainty, particularly with the recent US Federal Election. President Elect Donald Trump's proposed economic policies may reignite inflation. Fed Chair Jerome Powell emphasized that decisions will be made on a meeting-by-meeting basis, with a focus on maintaining employment and price stability.
The impact of the Fed's rate cut extends beyond US borders, significantly influencing Canadian markets. Following the announcement, US bond yields — particularly the 10-year Treasury note — rose sharply, indicating higher borrowing costs ahead. Consequently, the government of Canada’s five-year bond yield also climbed above 3%, suggesting that fixed mortgage rates in Canada are likely to increase. This trend could result in higher costs for homeowners and potential buyers, affecting their borrowing decisions.
As both the Canadian and US economies navigate this period of volatility, borrowers are advised to stay prepared for fluctuating interest rates in the coming months.
Also read: US Federal Reserve cuts rate by 0.25% in November announcement
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 2024. By December 11, 2024, the Bank had implemented five consecutive rate cuts, reducing the benchmark rate from 5% to 3.25% — a total reduction of 175 basis points. The latest rate cut was driven by slow economic growth and a rise in unemployment.
As a result of these cuts, the prime rate will fall to 5.45%, 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)