Prime rate in Canada
Key Takeaways
1. Canada's prime rate as of today is currently at 5.95%, 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 September, with home sales increasing by 6.9% year-over-year. This surge is largely driven by the Bank of Canada's rate cuts in June, July, and September, and further rate cuts expected in 2025 are likely to keep buyer demand strong in the coming months.
The prime rate in Canada today, October 29, 2024, is currently 5.95%. 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.
Prime rate vs. Bank of Canada target for the overnight rate
Canada Prime Rate Changes: 2010 - 2024
Effective Date | Prime Rate | Change |
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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September 8, 2022 | 5.45% | 0.75% |
July 14, 2022 | 4.70% | 1.00% |
June 2, 2022 | 3.70% | 0.50% |
April 14, 2022 | 3.20% | 0.50% |
March 3, 2022 | 2.70% | 0.50% |
March 30, 2020 | 2.45% | -0.50% |
March 17, 2020 | 2.95% | -0.50% |
March 5, 2020 | 3.45% | -0.50% |
October 25, 2018 | 3.95% | 0.25% |
July 12, 2018 | 3.70% | 0.25% |
January 18, 2018 | 3.45% | 0.25% |
September 7, 2017 | 3.20% | 0.25% |
July 13, 2017 | 2.95% | 0.25% |
July 16, 2015 | 2.70% | -0.15% |
January 28, 2015 | 2.85% | -0.15% |
September 9, 2010 | 2.75% | 0.25% |
July 21, 2010 | 2.75% | 0.25% |
June 2, 2010 | 2.50% | 0.25% |
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: October 23, 2024 Bank of Canada announcement
October 2024: Mortgage market update
It is widely expected that Canada's prime rate will continue to lower throughout the remainder of 2024 and into 2025, in tandem with anticipated rate cuts to the Bank of Canada's (BoC) Overnight Lending Rate.
The central bank has already enacted four rate cuts from June to October this year, bringing its trend-setting benchmark rate down by a cumulative 125 basis points, currently at 3.75%. Given inflation in Canada has now fallen to 1.6%, below the BoC's target range of 2%, it's expected that at least one more cut will come in December 2024, with potentially another four to five 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 October 15, 2024, the Canadian Real Estate Association (CREA) released the latest housing market statistics for September 2024. The data shows a marked increase in activity. A total of 37,733 homes were sold across Canada, representing a 6.9% year-over-year increase and a 1.9% rise from August. This uptick follows the Bank’s three quarter-point rate cuts between June and September, which have helped make mortgage rates more attractive. Sellers have also been active, with new listings rising by 4.9% from August, although inventory remains below historical levels, with 4.1 months of supply. As a result, the national sales-to-new-listings ratio (SNLR) dipped slightly to 51.3%, still within CREA’s balanced market range of 45% to 65%. The national average home price increased by 2.1% year-over-year to $669,630, reflecting renewed buyer demand. CREA has slightly adjusted its forecast, now expecting 468,900 home sales for 2024, with further growth anticipated in 2025 as interest rates continue to decline.
Read more: National home sales rise in September following summer rate cuts
- CPI update: On October 15, 2024, Statistics Canada reported that Canada’s Consumer Price Index (CPI) rose by just 1.6% in September, marking its lowest level in over three years. The drop was largely driven by a steep decline in gasoline prices, which fell by -10.7%. Core inflation, which excludes volatile items like gas, remained stable at 2.2%. Mortgage interest costs, the biggest factor in the CPI, continued to ease, growing at a slower pace of 16.7% compared to 18.8% in August. This shows the ongoing impact of the Bank of Canada’s three consecutive rate cuts. Given this latest data, analysts now widely predict a half-point interest rate cut at the Bank of Canada’s October 23 meeting. This would lower the overnight lending rate to 3.75%, reducing variable mortgage rates and prime-based loan products. On the flip side, this could also mean lower returns on savings accounts and guaranteed investment certificates (GICs) for consumers.
Also read: Canadian CPI falls to 1.6% in September, increasing chance of half-point rate cut
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 October 23, 2024, the Bank had implemented four consecutive rate cuts, reducing the benchmark rate from 5% to 3.75% — a total reduction of 125 basis points. These cuts were driven by falling inflation, with Canada’s Consumer Price Index (CPI) dropping to 1.6%, well below the BoC’s target of 2%.
As a result of these cuts, the prime rate will fall to 5.95%, 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)
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Prime Rate in Canada: Frequently asked questions
What is Canada's current prime rate?
The prime rate in Canada today, October 29, 2024, is currently 5.95%.*
* The prime rate in Canada shown above is automatically checked and updated on a daily basis for accuracy.
What will the prime rate in Canada be in 2024?
In its seventh announcement of the year on October 23, the Bank of Canada lowered the target for the overnight rate by -0.50%, taking it from 4.25% to 3.75%. This was the fourth time in a row that the central bank reduced its policy rate, after not having done so for over four years. In its accompanying commentary, the Bank pointed to declining inflation as the driver of its decision, noting that September’s CPI of 1.6% was well below the Bank’s 2% target.
Provided data continues to trend in the right direction, most expert observers are predicting that the Bank will carry out more rate cuts at the end of 2024 and into 2025. Should that come to pass, the prime rate in Canada will come down from its current level of 5.95%, and variable mortgage rates will come down with it.
How is the prime rate related to the Bank of Canada’s key interest rate?
When the Bank of Canada raises its target for the overnight rate (also known as the policy interest rate or the key interest rate), it becomes more expensive for banks and lenders to borrow money; so, in turn, they raise their respective prime lending rates to cover their additional costs. Similarly, when the Bank of Canada lowers the policy interest rate, it becomes cheaper for banks and lenders to borrow money. As a result, they lower their respective prime rates accordingly.
Why is TD’s mortgage prime rate higher than the mortgage prime rate of the other Big 5 Banks?
In 2016, TD decided to change its mortgage prime rate independent of the Bank of Canada, increasing it by 0.15% – other banks did not follow suit. As a result, TD’s mortgage prime rate continues to be higher than the mortgage prime rate of the other Big 5 Banks.