Mortgage solution
Prime rate
Prime is not a rate you get: it is the reference that variable rates and home equity lines are calculated from.
What it is
The prime rate is the reference rate each bank announces publicly. It is not set by law or by the Bank of Canada, but it follows the Bank closely: when the policy rate changes (at eight scheduled dates a year), the large banks adjust their prime within days, usually by the same amount. For several years it has sat roughly two points above the policy rate.
What it directly affects
A variable-rate mortgage reads “prime minus X” or “prime plus X”; a home equity line of credit, almost always “prime plus X”. In both cases the spread is negotiated once and stays fixed: it is prime that moves your rate. A fixed-rate mortgage is not tied to it during its term.
Prime is not the rate you will pay
Two lenders with the same prime can offer very different variable rates, because the discount differs. It is the spread against prime that has to be compared (along with the conditions attached to it), not the reference figure itself. The current market rates are on the mortgage rates page.
What a rise changes in practice
On a $400,000 balance, each quarter point of prime is roughly $1,000 of interest a year. The question is not to guess the Bank of Canada’s next decision; it is whether your budget absorbs a one-point rise without cutting anything. If it does, a variable tied to prime keeps its advantages; if not, a fixed rate buys predictability.
Documents to gather
What the lender will ask for.
- Discount negotiated against prime
- Products tied to prime in your file
- Effect of a one-point rise on the payment
- Upcoming Bank of Canada decision dates
- Home equity line of credit, if any
- Fixed versus variable for the same term
Frequently asked
Is prime the same at every bank?
Almost always, yes: the large banks announce the same prime and adjust it at the same time. What differs is the discount each one offers against that prime.
Does prime change my fixed rate?
No. A fixed rate is locked for its term, whatever prime does. It only matters for variable products and home equity lines.
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