Prime Rate
Taux préférentiel in French
Quick definition
The prime rate is the reference rate Canadian banks use to price floating-rate loans. Each bank sets its own prime, but the big banks move together, and variable mortgages, HELOCs, and lines of credit are all quoted as prime plus or minus something.
What the prime rate is
Prime is not a rate anyone actually pays. It is a benchmark: each bank publishes its own prime rate, and floating-rate products are priced relative to it. Your contract will say something like "our prime rate minus 0.9%" or "prime plus 0.5%", and the "our" matters, because the rate that applies is your own lender's posted prime.
In practice, the big banks move their primes in lockstep, changing by the same amount within a day or two of each other, so "the" prime rate is a reasonable shorthand. To find the current number, check your bank's posted rates; it changes several times in a typical year, so any figure printed here would go stale quickly.
What makes prime move: the Bank of Canada
Prime follows one driver: the Bank of Canada's overnight policy rate, the rate the central bank sets to keep inflation near its 2% target. The Bank reviews this rate on eight scheduled announcement dates a year, published well in advance.
When the Bank moves, the banks adjust their primes within days, almost always by the same amount and in the same direction. The gap between the two rates is stable: prime typically sits about 2.2 percentage points above the overnight rate (as of July 2026). So if you know what the Bank of Canada did, you know what your HELOC or variable mortgage rate is about to do.
What is priced off prime, and what is not
Prime matters to you only through the products tied to it. The main ones:
- A variable-rate mortgage, usually quoted as prime minus a discount negotiated up front.
- A HELOC, usually prime plus 0.5 to 1 percentage point (as of July 2026).
- Floating-rate personal loans, car loans, and business operating loans.
- Some student and professional lines of credit, often at prime or close to it.
Two things prime does not control
A fixed-rate mortgage is not priced off prime. Fixed rates follow Government of Canada bond yields, which move daily with market expectations, so fixed rates can rise or fall even when prime has not budged.
Credit cards are not priced off prime either. They charge fixed, high rates that barely move when prime does, which is why a rate cut never seems to show up on your card statement.
In Canada
The Bank of Canada's eight fixed announcement dates give Canadian borrowers a predictable calendar: if your loan floats with prime, those are the eight days a year when your rate is most likely to change. Markets often anticipate the decision, but your actual borrowing cost only moves once the banks reset their primes a few days later.
One line of caution for cross-border comparisons: the US prime rate is set about 3 percentage points above the Federal Reserve's policy rate, versus roughly 2.2 in Canada, so American and Canadian prime rates are not directly comparable even when the two central banks are in similar positions.
Worked example: a 0.25 point move
Aisha has a $400,000 variable-rate mortgage with a 25-year amortization, and her payment adjusts when prime moves. Suppose her rate is 4.5%: her payment is about $2,214 a month. The Bank of Canada raises its policy rate by 0.25 points, her bank's prime follows, and her rate becomes 4.75%: the payment rises to about $2,270.
That single quarter-point move costs her roughly $56 a month, or about $670 a year. With eight announcement dates a year, several such moves can stack up quickly, in either direction, which is the essential trade-off of borrowing at prime-linked rates.
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated July 2026