The Prime Rate

The Prime Rate

In Canada, mortgages are directly impacted by the prime rate and mortgage regulations established by Government. In the last decade, a drastic drop in the prime rate, coupled with the introduction of new regulations, have enabled consumers to take on more manageable debt loads.

The prime rate is the interest rate that commercial banks charge their most creditworthy clients, and is determined by the federal funds overnight rate (ie. the interest rate that large banks use to borrow and lend against each other). As such, the prime rate directly affects lending products such as fixed and variable mortgages, and home equity lines of credit (HELOC): if the prime rate increases, payments for variable rate mortgages and HELOCs will also increase. 

To protect consumers, it’s important to understand Canadian prime mortgage rate history. To do this, let’s take a look back at prime rate fluctuations and the associated regulations over the last ten years:

Prime Rate and Regulations

Prime rate: 
6 - 6.25%

  • The maximum loan permitted for non-insured mortgages increased from 75% to 80% of the home value.
  • Amortizations increased from 25 to 40 years.
  • Loan to value options of up to 100% available, 0% down payment required.

Prime rate: 
4.75 – 6%

October 15, 2008

  • The minimum down payment required goes from zero to 5%. 
  • Maximum amortization for mortgages is lowered from 40 to 35 years
  • Minimum credit score for borrowers is decided (620)

Prime Rate: 2.25 – 3.5%

Prime rate: 
2.25 - 2.75%

Aril 10, 2010

  • Minimum down payment of 20% required for government backed mortgage insurance on non-owner occupied properties
  • Maximum amount to borrow on a refinance is lowered from 95% of the home value to 90%
  • Canadians required to qualify on the standard of a 5 year fixed rate mortgage even if they select a mortgage with a lower interest rate and shorter term.

Prime rate: 

March 18, 2011

  • Maximum amortization for mortgages is lowered from 35 to 30 years
  • Maximum amount to borrow on a refinance is lowed from 90% of the home value to 85%

April 18, 2011

  • Withdrawal of government insurance backing on lines of credit secured by homes, such as HELOCs.

Prime rate: 

June, 2012

  • OSFI’s B-20 Guidelines on Residential Mortgage Underwriting Policies and Procedures goes into effect.  Outlines key principles for mortgage underwriting that banks are required to follow.
  • HELOCs are limited to 65% of the property value.  Any additional mortgage credit beyond 65% should be amortized.

July 9, 2012

  • Maximum amortization for insured mortgages is lowered from 30 to 25 years.
  • Maximum amount to borrow on a refinance is lowered from 85% of the home value to 80%
  • Gross debt service ratio is set at 39% and total debt service ratio set at 44%
  • Limiting availability of government back insured mortgages to homes with a purchase price less than $1 million.

Prime rate: 3%

Prime rate: 3%

Prime rate: 
2.7 - 3%

June 1, 2015

  • OSFI’s B-21 Guidelines on Residential Mortgage Insurance Underwriting Policies and Procedures comes into effect.  Focuses on mortgage insurers interactions with lenders.

Prime rate: 

February 15, 2016

  • Down payment rules change to 5% required for first $500,000 and 10% on the remaining portion above $500,000

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