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Rates are based on an average mortgage of $300,000
| Insured | 80% LTV | 65% LTV | Uninsured | Bank Rate | |
|---|---|---|---|---|---|
| 1-year fixed rate | 6.44% | 5.59% | 5.59% | 6.19% |
7.25%
|
| 2-year fixed rate | 5.15% | 5.45% | 5.45% | 6.34% |
6.89%
|
| 3-year fixed rate | 5.29% | 5.30% | 5.30% | 5.79% |
6.50%
|
| 4-year fixed rate | 5.39% | 5.30% | 5.30% | 5.54% |
6.29%
|
| 5-year fixed rate | 5.19% | 4.99% | 4.99% | 5.34% |
5.74%
|
| 7-year fixed rate | 5.39% | 5.84% | 5.84% | 5.94% |
6.39%
|
| 10-year fixed rate | 5.29% | 6.00% | 6.00% | 6.00% |
7.25%
|
| 3-year variable rate | 6.10% | 6.40% | 6.40% | 6.10% |
8.60%
|
| 5-year variable rate | 5.95% | 6.10% | 6.10% | 6.10% |
6.70%
|
| HELOC rate | 7.20% | 7.20% | 7.20% | 7.20% | N/A |
| Stress test | 5.99% | 6.89% | 6.89% | 6.99% | N/A |
Headquartered in Canada’s capital, Ottawa, the Bank of Canada was chartered in 1934 under the Bank of Canada Act. Its purpose is to create and manage Canada’s monetary policy, ensure and promote a sound financial banking system, and issue Canadian banknotes. The Bank of Canada also provides banking services and money management for the government, and loans money to Canadian financial institutions.
The bank was originally chartered as a privately owned corporation to ensure the bank would be removed from any undue political influence.
On March 11, 1935, the Bank of Canada began operations, following the granting of royal assent to the Bank of Canada Act.
In 1938, under Prime Minister William Lyon Mackenzie King, the bank was legally designated a federal Crown corporation. The government, at the time, appointed a board of directors to manage the bank, under the leadership of a governor. Each director swore an oath of "fidelity and secrecy" before taking office.
In 1944, the Bank of Canada then became the sole issuer of legal tender banknotes in Canada.
Over time, the Bank of Canada has evolved to assist with inflationary and interest rate policies.
The Bank of Canada is a Crown corporation, whose role is to create and monitor monetary policy, as well as issue bank notes. It is run by a Board of Governors and acts as an economic lever of the Canadian economy to ensure sound financial banking systems and policies are in place.
Other banks in Canada are for-profit institutions which deal with consumer or large business customers for lending, borrowing, and financing issues. Canadian banks provide services to customers that also provide investment and savings opportunities, and some have other divisions that sell insurance and mortgage products. These banks do not set monetary policy and rely on the Bank of Canada for certain lending rates.
Private banks also work as traders and underwriters of government and corporate debt.
The Bank of Canada has many roles in Canadian economic life such as issuing monetary policy and bank notes. It has evolved, however, as a major player in inflation fighting. The Bank of Canada aims to keep inflation at the 2% midpoint of an inflation-control target range of 1 to 3%. The inflation target is expressed as the year-over-year increase in the total consumer price index (CPI).
In 2022, the Bank of Canada has raised interest rates with the desire to curb economic activity, reduce demand and thus curb inflationary tendencies within the economy.
The Bank also monitors a set of core inflation measures that allow it to look through temporary changes in total CPI and focus on the underlying trend of inflation. In this sense, these core measures of inflation act as an operational guide to help the Bank achieve the total CPI inflation target.
The Bank carries out monetary policy by influencing short-term interest rates. It does this by adjusting the target for the overnight rate on eight fixed dates each year. The overnight rate is the interest rate at which a bank lends or borrows funds from another institution in the overnight market. In Canada, the overnight rate is the interest rate the central bank sets to target monetary policy.
If the economy is struggling to grow, it could pull inflation significantly below 2%. In response, the Bank might lower the policy rate so that other interest rates across the economy go down. This means:
But if the economy is growing too fast, it could lead to rising inflation. So, the Bank raises the policy rate, which means:
The overnight rate indirectly affects mortgage rates. As the overnight rate increases, it is more expensive for banks to settle their accounts, so to compensate they will raise longer-term rates. It can also affect savings rates in the same manner.
For many years, inflation in Canada has remained low in that 1 to 3% range. As a result, the Bank of Canada’s overnight rate changes since 2017 remained relatively low, which in turn kept consumer borrowing rates low.
As the chart shows, the overnight rate from 2017 until March of 2022, has remained relatively low, even at the beginning of the Covid-19 pandemic when consumer spending remained high.
Since April of 2022, supply chain issues, lockdowns and uncertainty have caused prices to rise and inflation to reach decade-high levels. In fact, inflation was at a low of –0.4% in May of 2020 and rose to a peak of 8.1% in June of 2022. The Bank of Canada acted to ease the inflationary pressures by aggressively raising rates as can be seen starting at that time. The rate has been climbing to its current 2022 rate of 3.25%. This has ultimately increased borrowing costs for consumers, raised mortgage rates, and has slowed the housing market considerably.
| Effective Date | Bank of Canada Overnight Rate | Change (BPS) |
|---|---|---|
| July 12, 2017 | 0.75% | n/a |
| Sept 6, 2017 | 1.00% | 25 |
| Jan 17, 2018 | 1.25% | 25 |
| July 11, 2018 | 1.50% | 25 |
| Oct. 24, 2018 | 1.75% | 25 |
| March 4, 2020 | 1.25% | -50 |
| March 16, 2020 | 0.75% | -50 |
| March 27, 2020 | 0.25% | -50 |
| March 3, 2022 | 0.50% | 25 |
| April 14 2022 | 1.00% | 50 |
| June 2, 2022 | 1.50% | 50 |
| July 14, 2022 | 2.50% | 100 |
| Sept 8, 2022 | 3.25% | 75 |
| Oct 27, 2022 | 3.75% | 50 |
The prime interest rate, also known as the “prime rate,” is the interest rate commercial banks charge their most credit-worthy business customers for things like variable rates and lines of credit. It is a baseline rate upon which all floating rate loans are negotiated (for example, prime + 3%). The prime rate is set by financial institutions in a competitive fashion.
The rate is individually set by each bank, but when the prime rate is moved by one bank, other banks tend to follow and use the same rate within a day or two. The prime rate tends to be set based on what the Bank of Canada sets their overnight target rate at.
After the Bank of Canada has set its overnight rate and banks have set their prime rates, mortgage rates will rise and fall. When the prime rate in Canada goes up or down, your mortgage rate will go up or down by the same amount. Variable mortgages usually come with a lower rate than fixed-rate mortgages, however there’s always a risk the rate could go up (or down) during your mortgage term.
The following chart shows historical rates from major chartered banks since 2017. Comparing this to the previous Bank of Canada overnight rates from the same time period, one can see a direct correlation between the two.
Each date in the chart below is exactly one day after the Bank of Canada’s rate changes. The percentage change in the prime rate is the same amount as the Bank of Canada’s rate change. It is clear that chartered banks closely follow the overnight right and react immediately to changes in their own lending rates.
The average consumer might not follow the Bank of Canada closely, but they are directly affected by its decisions when they trickle down through to their borrowing needs.
| Effective Date | Bank of Canada Overnight Rate | Change (BPS) | Prime rate of chartered banks | Change (BPS) |
|---|---|---|---|---|
| July 12, 2017 | 0.75% | n/a | 2.7% | n/a |
| Sept 6, 2017 | 1.00% | 25 | 2.95% | 25 |
| Jan 17, 2018 | 1.25% | 25 | 3.2% | 25 |
| July 11, 2018 | 1.50% | 25 | 3.7% | 50 |
| Oct. 24, 2018 | 1.75% | 25 | 3.7% | 0 |
| March 4, 2020 | 1.25% | -50 | 3.95% | 25 |
| March 18, 2020 | 0.75% | -50 | 2.95% | -100 |
| April 1, 2020 | 0.25% | -50 | 2.45% | -50 |
| March 9, 2022 | 0.50% | 25 | 2.7% | 25 |
| April 20, 2022 | 1.00% | 50 | 3.2% | 50 |
| June 8, 2022 | 1.50% | 50 | 3.7% | 50 |
| July 20, 2022 | 2.50% | 100 | 4.7% | 100 |
| Sept 14, 2022 | 3.25% | 75 | 5.45% | 75 |
Source: Bank of Canada
Inflation produces two results that amount to the same thing. Simply, during inflation, the costs of goods and services rise. At the same time, consumer purchasing power diminishes. Economists and the Bank of Canada measure inflation by looking at the average price of a “basket” of selected goods and services.
That basket is made up of goods and services that consumers typically buy such as food, transportation, clothing, recreation, housing and more is known as the Consumer Price Index or CPI.
Measuring the cost of living by looking at how the CPI rises or falls is how the Bank of Canada determines the rate of inflation. The Bank of Canada has set a target to keep inflation at the 2% midpoint of an inflation-control target range of 1 to 3%.
In 2022, as inflation has risen steadily from the beginning of the year from 5.1% to 7.0% this past August, the Bank of Canada has raised rates accordingly to bring that number closer to its target range of 1 to 3%. Once the BoC raises overnight rates so do bank prime rates – all correlated to the CPI numbers rising.
In the years leading up to 2022, overnight and prime rates remained historically low as inflation also remained low.
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Annual |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 5.1% | 5.7% | 6.7% | 6.8% | 7.7% | 8.1% | 7.6% | 7.0% | |||||
| 2021 | 1.0% | 1.1% | 2.2% | 3.4% | 3.6% | 3.1% | 3.7% | 4.1% | 4.4% | 4.7% | 4.7% | 4.8% | 3.4% |
| 2020 | 2.4% | 2.2% | 0.9% | -0.2% | -0.4% | 0.7% | 0.1% | 0.1% | 0.5% | 0.7% | 1.0% | 0.7% | 0.7% |
Source: Bank of Canada
The trend is your friend: 2022 has been a particularly harsh year for consumers. Inflation has not risen as much since the 1980s putting pressure on consumer purchasing power in most sectors.
One area of reprieve has been gas prices which reached records highs in the summer but abated somewhat in the fall months. Since the beginning of the year, inflation rose steadily from an already high level of 5.1% to 7.0% in August 2022. The good news is that August was the first time inflation had declined all year.
If trends continue and inflation continues to drop, the Bank of Canada may hold overnight rates at current levels to ensure the trend holds. Mortgage rates would therefore also be in a holding pattern and stay at current levels while the Bank of Canada is figuring out its strategy over the rest of the year.
Talk of recession continues but as of September 2022 had not yet taken hold as employment numbers remain strong in Canada. While difficult to predict, a drop in inflation and overnight rates in 2023 could see a corresponding decline in mortgage rates bringing back some consumers into the housing market.
The U.S. (and the rest of the world) has had to deal with similar inflationary pressures. The Federal Reserve has raised its inflation expectation this year from 5.2% to 5.4% while at the same time lifting inflation targets for 2023 and 2024. As a result, the Fed forecasts raising interest rates to a peak of 4.6% in 2023up from 3.8% in its June summary of economic conditions.
Find answers about questions you may have about the Bank of Canada.
In September 2022, the current Bank of Canada overnight interest rate is 3.25%, with a bank rate of 3.5% and a deposit rate of 3.25%.
The Bank of Canada overnight interest rate has been steadily climbing in 2022. The overnight rate at the beginning of 2022 was 0.50% and by the fall reached 3.25%.
It is difficult to determine what the Bank of Canada interest rate will be for the rest of 2022. The most recent inflation numbers showed a downward trend from the rest of the year, which if it continues, could change the trajectory of rate decisions for the rest of the year.
Current benchmark bond yield rate for the Bank of Canada are:
The Bank of Canada is expected to make their rate announcements on October 26 and December 7.
One of the Bank of Canada’s jobs is to set monetary policy and decided overnight lending rates for the chartered banks. When inflation is high, as it is now, raising rates allows the Bank of Canada to control investment and spending by consumers, which brings down demand and over time lowers prices/inflation.
In September 2022, the current inflation rate set by the Bank of Canada is 7.0%
*Based on the difference between estimated deep-discount 5-year fixed rates from Canada's top six banks and the lowest comparable rates on RATESDOTCA, as of January 14, 2022.
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