What is the current prime rate in Canada? [Complete Guide] (2023)

As the name suggests, Canada's "prime rate" is the lowest available lending rate that all major financial institutions charge their most trusted customers for a variety of credit products, including mortgages, personal loans and lines of credit.

menWhat is the current prime rate in Canada?

From May 2023, the base rate is set at 6.70%; however, it is subject to change because it is closely tied to the country's "overnight rate"—a key rate set by the Bank of Canada so banks can lend to each other.

Learn more about prime rates and how they affect ordinary consumers and their loan applications in the sections below!

What does "prime rate" mean?

Basic is the primary rateminimum interest rateCanadian banks and other lenders give loans to the most loyal applicants, so it serves as a benchmark for determining the interest rates they charge on all loan products.

Prime rate increase due to rapidly rising inflation through 2021 and 2022 (as a result of pandemic and war)From 2.45% on March 2, 2022 to 6.70% on January 25, 2023.- As of May 2023, it remains stable.

How is the "prime rate" determined?

Although banks are free to set their own prime rates,Major Canadian banks have an informal agreement to use it, were set a day after the country's central bank - the Bank of Canada - changed its rate overnight.

Additionally, since 2015 the prime rate has fluctuated at the same pace as the Bank of Canada's key rate --Float 2.20% over it.Since the overnight rate remained at 4.50% from February 2023, the prime rate was 6.70%.

The reason for this close relationship between the two rates is that when the Bank of Canada raises the overnight rate, the fees banks have to pay go up. Indeed they areMake up for the increased costs by getting customers to pay more.

How does this affect the average Canadian?

Most Canadians are affected immediately and overnight by changes in prime interest rates as their variable interest rates rise or fall with them. After all, financial institutions adjust their internal structure of loans according to the prime rate. For example, variable rate loans are often presented in the following format:Prime Rate +/- 1, 2, 3 % etc.

The impact of higher and lower prime rates on everyday consumers includes:

note:In times of economic turmoil, consumers should consider borrowing at a fixed rate because interest does not increase with the prime rate.

How does this affect different loan rates?

As mentioned above, changes in prime interest rates also affect loan rates for different loan products, which ultimately affects different types of borrowers in the country:

1. Mortgages with a variable interest rate

As a general rule, any lender that offers a variable rate mortgage product bases its mortgage rate on the current prime rate and adjusts its mortgage rate - when the prime rate rises or falls,Interest rates on mortgage loans can also rise or fall.

However, the actual interest rate paid will vary depending on factors such as lender policy and the applicant's circumstances: mortgage and property size.

Some lenders even offer slightly lower rates, especially if they expect the Bank of Canada to raise overnight rates soon.

In this case, however, borrowers still prefer to get an adjustable rate loan, especially if they expect to pay off the loan fairly quickly.

In any case, most consumers can switch from variable rate mortgages to fixed rate mortgages - a safe decision if prime rates rise.

2. Credit card

Because credit cards are not backed by valuable assets, they representUnsecured loans with higher interest ratesto compensate for the increased risk.

So when you're comparing different credit cards, you'll likely see them described as "Prime + 4.50% to 12.50%" or "Prime + 10% only."

Because their APR is variable, especially when the bank changes rather than the prime rate, credit cardholders need to be preparedUnstable fluctuations in interest payments, especially if the market is experiencing inflation or recovering from inflation.

3. Car loan

Compared to credit cards, auto financing is a mortgage with lower interest rates, but still lower than mortgage products.

Most of them are also based on the base price, so yoursPayments change when the Bank of Canada introduces a new overnight rate.On the other hand, if you're considering a fixed-rate car loan, apply as soon as you discover the lower rates, as those can change as well.

In order to stand out, some car dealers may even offer car loans at very low or even zero interest rates - deals you shouldn't miss out on.

4. Home Equity Line of Credit (HELOC)

Such productsalways use variable interest ratesPrime rates based on the country so you'll notice any changes in prime rates immediately.

However, the incremental HELOC is on the lower end. So you'll typically see HELOCs offered at "Prime + 0.50% to 1%."

However, be careful when applying for a line of credit secured by your home, because if you run into trouble, your assets are at risk of loss. So contact a financial professional to see if other loan options are available to you.

5. Personal loan

This general form of loan comes in different shapes and sizes. For example, you can get a loan in the amount of 100 to 50,000 DKK, use insurance for better loan conditions and choose a repayment term of 6 to 60 months.

Since this type of product is used for different purposes,The lender offers more flexibility than other loans.For example, in addition to the size of the loan, customers can choose whether they want a loan with a fixed interest rate or a loan with a variable interest rate.

The size of their payment will also depend on the period they choose, the size of the add-ons and whether they add additional services. Of course, those withVariable loans can end up paying different amountsoffline.

6. Business loan

Like personal loans, business financing in Canada has both fixed and variable interest rates. But if you are an entrepreneur who needs a loan, there are many loans available to youIndividual borrowers do not have access to various benefits.

For example, business loans have longer repayment periods, more capital and lower interest rates, so even if the prime rate changes,Owners are less affected than ordinary consumers.Interest is also tax deductible in most cases!

Trends in prime rates in Canada

Although the base rate changes over time, there are sometimes constant and unpredictable fluctuations due to external factors affecting the country's economy.

We live in a time caused by several factors, the most prominent of which are the Covid-19 pandemic and Russia's unjust invasion of Ukraine.

Let's take a look at the latest changesHistory of the Canadian prime rate:

As you can see, the base rate has been steadily increasing since March 2, 2022From 2.45% up to 6.70%- It reached a milestone on January 25, 2023.

In addition, the rate of 2.45%, which has been maintained for two consecutive years since March 2020, is the lowest benchmark rate since 2.25% in early 2010.

For the rest of 2023, the main rate (and overnight rate) isIt is expected to remain at 6.70%, a possible decrease of 0.25% in October 2023.

Is the main price the same across Canada?

Although each Canadian bank is responsible for setting its own prime rate, all major banks and other smaller lenders choose to use the same prime rate.

For example,major banksDomaće, od Royal Bank of Canada do Scotiabank, TD Bank, CIBC, BMO, HSBC i National Bank of Canada,Increase base rate from 6.45% to 6.7%January 25, 2023

Subject overview

The prime rate is the base rate that lenders use when setting rates on all their products so that only the most reliable customers have access to it. All others are usually quoted a few percentage points above the primary value.

After the country's central bank - the Bank of Canada - adjusts the overnight interest rate, banks change their prime rate, which is 2.2 percent below prime.

Ultimately, the prime interest rate is an indicator of the health of the economy and affects all credit products. Therefore, borrowers of variable rate loans must keep an eye on the base interest rate to adjust their financial situation as needed.