December 23, 2025 – The prime interest rate in Canada is currently 4.45%.

Today’s Prime Rate in Canada

The prime rate in Canada today is 4.45%, serving as a key benchmark for borrowing costs across the country. The Canadian prime rate influences everything from variable mortgage rates to personal loans and lines of credit. Because it’s a floating rate, the prime moves in step with the Bank of Canada’s target for the overnight policy rate, which the Bank uses to manage inflation and economic growth.

Understanding how the prime rate works empowers you to make better decisions, whether you’re choosing between fixed and variable mortgages, planning a refinance, or simply monitoring your monthly budget as your cost of borrowing evolves.

• Canada’s prime rate is currently 4.45%, unchanged since March 2025.
• The prime rate adjusts shortly after each Bank of Canada policy rate decision.
• Variable-rate mortgages, HELOCs, and credit lines are directly affected by changes in the prime rate.
• Since 2023, the prime rate has declined significantly as inflation eased from historic highs.
• Economists expect gradual reductions to continue through late 2025, depending on the evolution of inflation and trade uncertainty.

Mortgage Industry Insights: December 2025

Bank of Canada Rate Announcement

The Bank of Canada’s (BoC) latest announcement, made on December 10th, was a policy interest rate hold, keeping the rate at 2.25%.

The Governing Council decided to maintain the policy rate, citing a resilient economy. The Bank expects economic growth to pick up in 2026, even as uncertainty remains high and there may be some quarterly volatility in trade. Employment has shown signs of improvement with employment gains over the past three months, and the unemployment rate has declined.

The next announcement will be on March 18. The bond futures markets are currently pricing in a 88% probability of a rate hold and a 12% probability of a 25 basis point cut.

Real Estate Market Update

On December 15th, the Canadian Real Estate Association (CREA) released its November home sales data, showing that activity edged lower. Home sales declined 0.6% month over month, leaving transactions largely unchanged since July but still above the lows seen in the spring. Actual sales volumes were 10.7% below November 2024 levels, reflecting a market shift from mid-year momentum to a more cautious holding pattern.   

November’s home sales activity saw new listings fall 1.6% month over month. As the Bank of Canada signalled that rates are as low as they are likely to get, activity is expected to pick up in 2026. However, uncertainty remains whether the spring market will finally return to more normal levels of housing activity.

CPI Inflation Update

The most recent inflation data show a 2.2% year-over-year rise in November, matching the 2.2% increase in October. This was due to prices for services rising at a slower rate year-over-year in November than in October. Offsetting slower growth in services were higher annual prices for goods, primarily driven by price increases for groceries and a smaller decline in gasoline prices.  

Prime Rate vs. Bank of Canada Overnight Rate

What Is the Bank of Canada’s Overnight Rate?

The overnight rate, also known as the policy rate, is the interest rate at which chartered banks lend money to each other on an overnight basis. Canada’s central bank, the Bank of Canada, uses the prime rate to guide monetary policy, raising it to cool inflation or lowering it to stimulate the Canadian economy.

Why Do Banks Adjust Prime Rates?

When the Bank of Canada changes the overnight rate, banks almost always adjust their prime rates within a few days. Although each lender technically sets their prime rate, competitive pressure keeps them aligned. Historically, the prime sits about 2.20% higher than the overnight rate.

As of December 2025:

• Bank of Canada Overnight Rate: 2.25%
• Prime Rate: 4.45%

How the Prime Rate Affects Your Mortgage

The prime rate is the foundation for variable-rate borrowing. It acts as the starting point lenders use to price a wide range of credit products, from personal lines of credit to business loans, and it plays a central role in determining how affordable borrowing becomes when economic conditions shift.

Before exploring the specifics of how variable and adjustable mortgages work, it is helpful to understand why the prime rate has such a significant influence. When it changes, it quickly ripples through nearly every type of variable lending in Canada, affecting both new applications and existing balances.

Variable-Rate Mortgages and HELOCs

Variable mortgage rates are typically advertised as prime plus or minus a percentage (representing the discount or premium). Home equity lines of credit (HELOC) are advertised similarly. For example:

• Prime + 0.50% = 4.95% as effective rate HELOC rate, as the prime is currently at 4.45%

VRM vs. ARM Explained

As prime fluctuates, your borrowing cost rises or falls. Changes to your lender’s prime rate will affect your monthly payment with an ARM and your amortization with a VRM. Prime rate changes impact your monthly payment (in adjustable-rate mortgages) and the allocation of each monthly payment between principal and interest (in variable-rate mortgages).

• Variable-Rate Mortgage (VRM): Your monthly payment remains the same when the prime rate changes, but a higher or lower portion of it goes toward paying interest, which directly affects your remaining amortization.
  
• Adjustable-Rate Mortgage (ARM): Your monthly payment adjusts automatically up or down as the prime rate changes; while your mortgage principal remains unaffected, preventing negative amortization.

What to Consider Between Fixed vs. Variable

Fixed mortgage rates are primarily driven by the Government of Canada bond yields, not the prime rate. However, if the Bank of Canada signals a long period of lower rates, bond yields often fall, indirectly reducing fixed rates.

When rates are high but expected to fall, variable products can offer savings. If stability is a top priority, locking into a fixed rate can help avoid payment shocks and provide predictable budgeting and cash flow.

*Most Recent Prime Rate Shown
Source: BankofCanada.ca

Prime Rate Forecast for Canada

The Bank of Canada held rates steady on December 10 amid:

• Ongoing US tariffs and trade uncertainty
• Weaker economic conditions
• Slower progress on core inflation

Bond market pricing suggests a 12% chance of a 25-basis-point cut by the next Bank of Canada meeting on January 28, with further gradual reductions possible into 2026 if inflation remains below the BoC’s 2% target. Recent updates to our mortgage rates forecast suggest higher fixed rates over the long term.

Prime Rate Trends and Historical Context

Over the last decade, Canada’s prime rate has experienced significant fluctuations, but historically, higher mortgage rates have been the norm compared to those available today. 

Here are recent highlights to changes in the prime rate:

Year	Prime Rate Range
2020	2.45% (pandemic lows)
2022	6.45% – 6.95%
July 2023	7.20% (peak)
December 2024	5.45%
June 2025	4.95%

Historical Highs:

• 1981: Prime reached 22.75% during a period of runaway inflation.

Recent Timeline:

• 2022–2023: Rapid rate hikes to tame inflation.
• 2024: Steady rate cuts as inflationary pressures moderated.
• 2025: Cautious easing continues amid trade tensions and slowing growth.

_{Source: bankofcanada.ca}

How Does the Prime Rate Impact Variable Mortgage Rates?

The Bank of Canada’s (BoC) target overnight rate directly influences prime rates set by lenders. When the policy rate changes, prime rates adjust accordingly. Most lenders calculate their prime rate as the BoC’s policy rate plus approximately 2.2%. This prime rate is the foundation for lenders’ posted rates, which they advertise to borrowers.

Posted rates typically include the prime rate plus or minus a specific percentage. For example, a lender might offer a prime + 0.5% or prime – 0.5% rate, meaning you’ll pay the prime rate with a premium or discount.

Variable-rate mortgages, tied to the prime rate, can have fixed or adjustable payments.

• Adjustable-rate mortgages (ARM): Adjustable mortgages have payments that fluctuate whenever the prime rate changes. Since the payment adjusts automatically, negative amortization is avoided when the interest owed exceeds the payment.
• Variable-rate mortgages (VRM): Variable mortgages keep your payments unchanged even if the prime rate changes. However, if the prime rate increases, more of your payment will go toward interest and less toward the principal, potentially leading to negative amortization, where your principal balance may not decrease as expected by the end of the term.

When the prime rate decreases, your variable mortgage rate follows, resulting in lower interest costs. In this case, a greater portion of your payment is applied to the principal, which can help you pay off your mortgage faster and reduce the remaining balance at the end of the term.

Frequently Asked Questions (FAQ) About the Prime Rate in Canada

Final Thoughts

Canada’s prime rate is one of the most important benchmarks for borrowers. Whether you’re renewing, refinancing, or buying a home, understanding how the prime rate influences your mortgage and credit facilities can help you make better financial decisions.

Looking to make the most of today’s mortgage market? Contact nesto mortgage experts for tailored advice and low rates that match your long-term financial strategy.

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