What is a prime rate?
What is the prime interest rate in Canada, and why is it important? Find out how the prime rate can affect your finances.
Why are mortgages so expensive in Canada?
Created By
Ratehub.ca
A prime rate is a benchmark used to set prices on financial products. Canadian banks set their prime rates based on the Bank of Canada’s (BoC’s) target overnight rate, also referred to as its policy interest rate or benchmark rate. Usually, the Big Five banks all use the same prime rate.
Loans with variable interest rates (like variable-rate mortgages) are usually priced in relation to the prime rate. For example, an interest rate stated as “prime minus 2%” will be 4% when prime is 6%, or 2% when prime is 4%.
Changes in the prime rate affect the prices of most financial products, even if they aren’t variable-rate products. When the prime rate increases, the cost of borrowing generally increases, as do the rates of return on guaranteed investment certificates (GICs) and other fixed-income investments.
Example: “In addition to variable-rate mortgages and variable-rate car loans, home equity lines of credit (HELOCs) and certain credit cards calculate interest based on the current prime rate.”
Read more about interest rates:
- What the Bank of Canada’s latest overnight rate hike means for your finances
The central bank’s overnight interest rate sets the tone for the prime rates offered by banks. We explain what changes in the policy rate mean for you. - The best 5-year fixed mortgage rates in Canada
You’re two minutes away from getting the best mortgage rates in Canada. Just answer a few quick questions to get a personalized rate quote. - Housing affordability: What happens when lower home prices take on higher borrowing costs?
Borrowing costs are increasing as Canada experiences the fastest drop in home prices since the 1980s. Have we reached a tipping point for affordability? - Rising rates are good news for near-retirees seeking longevity insurance
Annuities are getting more attractive, so is it time to inch in as rates rise further?
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Related Articles
How to plan for retirement when you have no pension
Practical advice on how to build your retirement savings for employees at mid-career, the self-employed, single parents and more.
Canada’s inflation rate increased to 2% in October
Canada’s inflation rate rose to 2% last month, up from 1.6% in September, but a December interest-rate cut is...
Inflation is on target in Canada, so why is food (and other stuff) still so expensive?
Why Canadians are still feeling the squeeze of high food costs, and what to do about it.
Estate planning for singles—is a trust company the answer?
Canadians with no children or siblings must consider estate planning alternatives. Here’s why trust companies can be a good...
The best high-interest savings accounts in Canada for 2024
Whether you want the highest interest rate or no service fees, these savings accounts will meet your needs.
The best GIC rates in Canada for 2024
Find the best GIC rates in Canada. Plus, everything you need to know about how they work.
Buying ETFs in Canada Tool: The MoneySense ETF Screener
Which ETFs should you invest in? Which ones best suit your risk tolerance? What about personal ethics? Check out...
Making sense of the markets this week: November 17, 2024
The Trump effect and Trumponomics, Shopify’s huge earnings beat, it’s sunny days for Suncor shareholders and more.
MoneySense at the MoneyShow: Capital gains and ETF sessions
Here’s how to get your free ticket to attend two MoneyShow virtual expos.