One of the questions I often get from clients is what is prime rate? Here’s a blog post to help answer the question.

Benchmark for other lending rates

The prime rate is a key interest rate that affects borrowing costs for both consumers and businesses. In Canada, the prime rate is set by the Bank of Canada and is used as a benchmark for other lending rates.

Variable mortgage rates are closely tied to the prime rate

When it comes to real estate in Ontario, the prime rate plays an important role in determining mortgage rates. Mortgage lenders typically offer variable rate mortgages that are tied to the prime rate, which means that when the prime rate goes up or down, so does the interest rate on the mortgage.

Has an impact on the monthly mortgage payments (i.e., amount of interest paid)

For homeowners in Ontario, a change in the prime rate can have a significant impact on monthly mortgage payments. When the prime rate goes up, the interest rate on the mortgage also goes up, which means that homeowners will have to pay more interest each month. Conversely, when the prime rate goes down, the interest rate on the mortgage goes down, which can result in lower monthly payments.

Prime rate adjustments are based on several economic factors

It's important to note that the Bank of Canada doesn't control mortgage rates directly, but rather influences them through changes to the prime rate. The Bank of Canada adjusts the prime rate based on a variety of economic factors, such as inflation, economic growth, and global economic conditions.

In summary, the prime rate is a key interest rate that affects borrowing costs and mortgage rates in Ontario. Homeowners should keep an eye on changes to the prime rate, as they can have a significant impact on monthly mortgage payments. It's also a good idea to consult with a mortgage professional to understand how changes to the prime rate may affect your specific mortgage.

Check out the blog post Fixed & Variable Interest Rates - Differences Explained for more information on interest rates.