The prime rate is the number that determines what you pay on virtually every variable-rate product in Canada — your variable mortgage, HELOC, line of credit, and even some savings accounts. Here’s everything you need to know about how it works.
What is the prime rate?
The prime rate is the base interest rate that Canadian banks use to price variable-rate lending. It is not set by the Bank of Canada — each bank sets its own prime rate independently. In practice, however, all major banks set prime at the same level and move it in lockstep with BoC rate decisions.
| Component | Current Value (August 2026) |
|---|---|
| Bank of Canada overnight rate | 2.25% |
| Conventional spread | +2.20% |
| Prime rate | 4.45% |
Source: Bank of Canada Valet API, series V39079, as of 2026-08-26.
The formula
Prime rate = Bank of Canada overnight rate + 2.20%
This 2.20% spread has been the convention since 2015, when TD moved its prime rate to 2.85% while the BoC rate was 0.75% — widening the historical spread from 2.00% to 2.10%. Other banks followed, and the spread eventually settled at 2.20% across the industry.
How prime rate affects your mortgage
Variable mortgage pricing
Variable mortgages are priced as prime minus (or plus) a discount negotiated at the time you sign your mortgage:
| Scenario | Prime Rate | Your Discount | Your Variable Rate |
|---|---|---|---|
| Strong discount | 4.45% | −1.00% | 3.45% |
| Good discount | 4.45% | −0.80% | 3.65% |
| Average discount | 4.45% | −0.50% | 3.95% |
| Weak discount | 4.45% | −0.20% | 4.25% |
| Premium (higher risk) | 4.45% | +0.50% | 4.95% |
Your discount (or premium) is fixed for the term of your mortgage. When prime changes, your rate changes by the same amount but your discount stays the same.
HELOC pricing
HELOCs are priced as prime plus a premium:
| Product | Typical Rate | Current (August 2026) |
|---|---|---|
| HELOC (excellent credit) | Prime + 0.50% | 4.95% |
| HELOC (good credit) | Prime + 1.00% | 5.45% |
| HELOC (fair credit) | Prime + 1.50%+ | 5.95%+ |
Lines of credit
| Product | Typical Rate | Current (August 2026) |
|---|---|---|
| Secured LOC | Prime + 0.50% to +1.50% | 4.95%–5.95% |
| Unsecured LOC | Prime + 2.00% to +5.00% | 6.45%–9.45% |
| Student LOC | Prime + 0.00% to +1.00% | 4.45%–5.45% |
Prime rate history in Canada
| Date | BoC Overnight Rate | Prime Rate | Change | Context |
|---|---|---|---|---|
| Jan 2015 | 0.75% | 2.85% | −0.15% | Oil crash, surprise cut |
| Jul 2015 | 0.50% | 2.70% | −0.15% | Second oil-related cut |
| Jul 2017 | 0.75% | 2.95% | +0.25% | First hike in 7 years |
| Jan 2018 | 1.25% | 3.45% | +0.25% | Hiking cycle continues |
| Oct 2018 | 1.75% | 3.95% | +0.25% | Rate cycle peak |
| Mar 2020 | 0.25% | 2.45% | −1.50% | COVID — three cuts in one month |
| Mar 2022 | 0.50% | 2.70% | +0.25% | First post-COVID hike |
| Jul 2022 | 2.50% | 4.70% | +1.00% | BoC’s largest single hike since 1998 |
| Jan 2023 | 4.50% | 6.70% | +0.25% | Near peak of hiking cycle |
| Jul 2023 | 5.00% | 7.20% | +0.25% | Cycle peak — prime at 20+ year high |
| Jun 2024 | 4.75% | 6.95% | −0.25% | First cut of easing cycle |
| Jan 2025 | 3.00% | 5.20% | −0.25% | Cuts continuing |
| Mar 2025 | 2.75% | 4.95% | −0.25% | Cuts continuing |
| Oct 2025 | 2.25% | 4.45% | −0.25% | Latest cut — current rate as of August 2026 |
Key observations
- Peak: Prime reached 7.20% in July 2023 — the highest since 2001
- Trough: Prime hit 2.45% in March 2020 — the lowest in Canadian history
- Speed: Prime rose from 2.45% to 7.20% (a 4.75% increase) in just 28 months (2022–2023)
- Normal range: Based on the neutral rate, prime of ~4.50%–5.50% is likely the long-run baseline
When the prime rate doesn’t match convention
While banks almost always set prime at overnight rate + 2.20%, there have been exceptions:
| Date | What Happened |
|---|---|
| April 2015 | TD moved prime to 2.85% after a 0.25% BoC cut, but reduced prime by only 0.15%. Other banks initially cut by 0.25% to 2.70%, then TD re-aligned. |
| March 2020 | During the COVID emergency, some smaller lenders were slow to pass through the full 1.50% in BoC cuts. Major banks matched within days. |
The convention holds 99% of the time, but it’s worth confirming your bank’s specific prime rate after any BoC announcement.
The spread: why prime is 2.20% above the overnight rate
The spread between the overnight rate and prime covers:
| Component | Purpose |
|---|---|
| Operating costs | Branch operations, technology, compliance, staff |
| Credit risk | Expected losses on variable-rate loans |
| Profit margin | Bank profitability on lending products |
| Reserve buffer | Protection against unexpected costs or losses |
The spread widened from the historical 2.00% to 2.20% during the 2015–2016 oil crash as banks increased their risk buffer. It has remained at 2.20% since.
How to use prime rate in your mortgage planning
1. Know your effective rate
Your mortgage documents state your rate as “prime − X%” or “prime + X%.” To calculate your actual rate at any time:
Your rate = current prime rate +/- your discount
2. Model rate scenarios
| If BoC moves to… | Prime becomes… | Your rate (at prime − 0.80%) |
|---|---|---|
| 2.25% (current rate) | 4.45% | 3.65% |
| 2.75% (hikes) | 4.95% | 4.15% |
| 3.25% (hikes) | 5.45% | 4.65% |
| 4.00% (significant hikes) | 6.20% | 5.40% |
3. Compare prime-based vs fixed rates
Your decision between variable and fixed comes down to whether you think the average prime rate over your term will result in a lower cost than the fixed rate offered today.
| 5-Year Fixed | Variable (prime − 0.80%) | Variable Wins If… |
|---|---|---|
| 4.30% | 3.65% today | Prime averages below ~4.60% over 5 years |
4. Negotiate your discount
The discount off prime is negotiable and varies by lender. Mortgage brokers often secure better discounts than banks offer directly. A 0.20% better discount saves approximately $5,000 on a $500,000 mortgage over 5 years.