Why Does it Matter to Mortgage Borrowers?
The Prime rate is the benchmark that banks and mortgage lenders use to price their variable-rate mortgage products. Variable-rate mortgages are priced at a margin, plus or minus, relative to the prime rate. For instance, a variable-rate mortgage may have a rate of prime minus 0.5%.
Interest rates have recently levelled off. The Bank of Canada is not expected to cut rates for the foreseeable future and bond yields are flat year-over-year, even though they have recently increased in response to the conflict in Iran. You might see news headlines referring to the prime rate, noting the periodic changes in interest rates from the Bank of Canada, its impact on the prime rate and the impact it has on variable-rate mortgage borrowers. In late 2025 the prime rate at the major banks declined and it is now holding steady at 4.45%. This recent rate stability is good news but, as a mortgage borrower, do you understand how the prime rate affects you?
What is the prime rate?
The prime rate in Canada as of March 18, 2026 is 4.45%.
Canadian Prime Rate Trend
Live Bank of Canada data, showing the last 50 years.
The prime rate is most commonly defined as the interest rate commercial banks charge their most credit-worthy customers. It serves as a benchmark rate for setting the rates on a variety of financial products, including mortgages, personal loans, and lines of credit. The prime rate is influenced by a number of factors, including inflation, economic growth, and the supply and demand for credit.
The prime rate is determined by the banks themselves, and it is typically set at a level that is 1.5 to 2.5 percentage points above the overnight lending rate (aka: the Policy Rate) set by the Bank of Canada.
The current prime rate appears high to us today, partly due to the fact that is has been unusually low over the past decade. The average Prime Rate over the past 50 years is 7.18%, higher than today. However, the average over the past 20 years is 3.75%. Compared to more recent history, the prime rate is a bit high at 4.45%.
How is the prime rate determined?
The Bank of Canada's monetary policy is a key determinant of the prime rate even though it does not directly set the rate. The Bank of Canada uses its benchmark overnight lending rate to regulate the nation's economic growth and restrain inflation. The Bank of Canada influences short-term interest rates by adjusting the target for the overnight rate. They make eight rate announcements each year, sometimes changing rates and sometimes keeping them unchanged. When the Bank of Canada changes their policy rate, the prime rate charged by banks changes as well. The dates when they have changed rates and the impact on the prime rate are below:
