What is the Prime Rate?
The prime rate is a benchmark interest rate that Canadian banks use to price variable-rate loans, including variable-rate mortgages. Each bank sets its own prime rate, but in practice, the major banks move their prime rates in lockstep with the Bank of Canada's policy interest rate, usually by the same amount.
When you hear about a 'prime rate change,' it often refers to a coordinated adjustment across banks following a Bank of Canada decision.
The prime rate itself is not a mortgage rate. It is the reference rate from which variable mortgage rates are derived, typically expressed as 'prime plus' or 'prime minus' a percentage.
Sources: RBC Royal Bank, Ratehub.ca
How RBC Sets Its Prime Rate
RBC sets its own prime rate, but it closely tracks the Bank of Canada's policy rate.
Because the prime rate is a benchmark, it affects all variable-rate products, including lines of credit and variable-rate mortgages.
Sources: RBC Royal Bank
Connection to Variable Mortgage Rates
Variable-rate mortgages are priced relative to the prime rate.
With a traditional variable-rate mortgage (VRM), your monthly payment remains fixed for the term. When the prime rate changes, the amount of each payment that goes toward interest versus principal shifts. For example, if the prime rate drops, more of your payment goes to principal, paying down your mortgage faster.
With an adjustable-rate mortgage (ARM), your monthly payment adjusts automatically when the prime rate changes, keeping your amortization schedule on track.
- VRM: fixed payment, variable interest allocation
- ARM: variable payment, fixed amortization
Sources: Ratehub.ca, RBC Royal Bank
Historical Prime Rate Changes
The most recent change to RBC's prime rate was a 0.25% decrease on October 29, 2025, from 4.70% to 4.45%.
This change followed a period of stability. Canada's prime rate had remained at 4.45% since October 2025, after a series of Bank of Canada rate cuts between June 2024 and October 2025. Earlier, from March 2022 to March 2023, the prime rate saw a historically steep increase of 4 percentage points, from 2.70% to 6.70%.
In mid-2026, the Bank of Canada held its overnight rate at 2.25% on July 15, 2026, marking its sixth consecutive hold. This suggests a period of stability in prime rates.
- October 29, 2025: RBC prime rate decreased by 0.25%, from 4.70% to 4.45%
- March 2022 to March 2023: RBC prime rate rose from 2.70% to 6.70%
- Since October 2025: Prime rate has remained at 4.45%
Sources: WOWA.ca, Ratehub.ca
Example: Impact on Monthly Payment
To illustrate how a prime rate change affects your variable mortgage, consider a $500,000 mortgage. A 0.25% decrease in RBC's prime rate would save approximately $104.17 per month in interest costs. This is a simplified estimate; actual payments depend on your mortgage amount, amortization, and the specific terms of your loan.
For a smaller mortgage, the savings would be proportionally lower. These figures illustrate the general impact, but you should use a mortgage calculator or consult with a lender for precise numbers.
- $500,000 mortgage: ~$104.17/month reduction in interest for a 0.25% prime cut
Sources: WOWA.ca
What to Expect When the Prime Rate Changes
When the prime rate changes, your variable-rate mortgage interest rate will adjust accordingly. For a VRM, your payment stays the same, but the interest portion changes. For an ARM, your payment itself will adjust.
If the prime rate increases, you'll face higher interest costs. For example, the monthly payment on a U.S. While this illustrates the potential impact, Canadian mortgage terms and amounts differ.
If you're concerned about rate changes, it's important to understand your mortgage product and how it responds to prime rate movements.
Frequently asked questions
How often does RBC change its Prime Rate?
RBC changes its prime rate in response to changes in the Bank of Canada's policy rate, which is announced on a scheduled calendar. The bank does not have its own fixed schedule; it typically moves its prime rate only when the central Bank adjusts its policy rate.
Sources: Bank of Canada, WOWA.caWhy did the Prime Rate increase by exactly 0.25%?
The prime rate movement matches the Bank of Canada's policy rate changes. When the central bank adjusts its rate, RBC and other banks typically move their prime rates by the same increment. However, the example you cited—the most recent change—was actually a 0.25% decrease, lowering RBC's prime rate from 4.70% to 4.45%.
Sources: WOWA.caDo fixed mortgage rates depend on the Prime Rate?
No, fixed mortgage rates are not directly affected by changes in the prime rate. They are primarily determined by Government of Canada bond yields.
Sources: Ratehub.caSources
- Interest rates posted for selected products by the major chartered ... — Bank of Canada
- RBC Prime Rates August 2026 — WOWA.ca
- Prime Rate in Canada — Ratehub.ca
- Variable Rate Mortgage | RBC Royal Bank of Canada — RBC Royal Bank
- RBC Prime Rate — Ratehub.ca
- Reverse Mortgages - Report to Congress — Consumer Financial Protection Bureau