1 Answer

What is the Prime Rate?
In Canada, the prime rate is a guideline interest rate used by banks on loans for their most creditworthy, best, or "prime" clients. The prime rate rises and falls with the ebb and flow of the Canadian economy, influenced significantly by the overnight rate, which is set by the Bank of Canada.

The prime rate is of particular significance to variable rate mortgages, which are mortgages that use a rate that tracks the prime and changes in lock-step with it over the term of the mortgage. It's only natural that because of this, variable rate mortgages are less insulated from economic fluctuations than their fixed-rate mortgage counterparts.

The Prime Rate & Variable Rate Loans
The prime rate itself is not often applied directly to variable rate loans themselves. Instead, these loans are set to track the prime rate with an adjustment value added to or subtracted from the prime rate. When the adjustment value subtracts from the prime rate, this constitutes what is otherwise known as sub-prime lending.

For example, when prime lending rates were high, many Canadian lenders were offering variable rate mortgages as low as prime minus 0.90 per cent. Since then, economic pressures and shrinking profit margins have forced banks and lenders to decrease prime rate adjustments to anywhere between prime minus 0.21 to prime plus 0.20 per cent.

Current Prime Interest Rate:
3.00%

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