What’s the impact of a prime rate change?

Learn how a change in the prime rate might affect you and your mortgage.

The Bank of Canada has announced a decrease to the overnight rate, which has resulted in a MCAP prime rate decrease as of October 24, 2024 to 5.95%.

Understanding prime rate in Canada

The prime rate, or prime lending rate, is a rate set by the Bank of Canada that banks and lenders use to set interest rates for their lending products, like loans and mortgages. The Bank of Canada typically makes changes to the prime rate, up to eight times a year, depending on various economic factors. Once the Bank of Canada announces a prime rate change, most financial institutions will change their prime rates as well.

How a prime rate change may impact your adjustable rate mortgage

If you have an adjustable rate mortgage, your rate will change based on the MCAP prime rate. Here’s a simplified overview of what you could expect for your mortgage when the prime rate goes up or down.

MCAP prime rate goes down	MCAP prime rate goes up
Homeowners affected by the rate change will receive a notification by mail or in MyMCAP. Your next loan payment stays the same, but the principal and interest portions are adjusted. The following mortgage payment will be lower based on your individual rate calculation.	Homeowners affected by the rate change will receive a notification by mail or in MyMCAP. Your next loan payment stays the same, but the principal and interest portions are adjusted. The following mortgage payment will be higher based on your individual rate calculation.

Did you know?

A change to the prime rate doesn’t always mean your mortgage payments will change. Depending on additional factors like the remaining amortization on your mortgage or your payment schedule, your mortgage payments may remain the same.

For more information you can reach out to our team.

How to calculate your mortgage rate and payments

Whether you’re planning ahead or curious to see how rate changes will impact your overall finances, it’s easy to calculate your rate and mortgage payments.

Find MCAP’s most recent Prime Rate.

Use our Mortgage Payment Calculator to see what your payments will look like.

Example: An MCAP Homeowner with an adjustable rate mortgage has a rate calculation of MCAP Prime Rate - 0.95%. With news of a potential Bank of Canada prime rate change, they want to calculate what their mortgage payments will be if the rate goes down.

Mortgage Payments Before Rate Change	Mortgage Payments After Rate Change
Mortgage Amount: $500,000 Amortization: 25 years MCAP Prime Rate 6.45% - 0.95%* = 5.50% Monthly Payment: $3,051.96	Mortgage Amount: $500,000 Amortization: 25 years MCAP Prime Rate 5.95% - 0.95%* = 5.00% Monthly Payment: $2,908.02
Monthly Savings: $143.94

You can adjust the interest rate up or down to see how your payments will change and get a better idea of how a change to the Prime Rate will make a difference on your regular payments.

What to do when your mortgage rate changes

A decrease in the prime rate can be beneficial for MCAP homeowners with an adjustable rate mortgage and offer them more financial flexibility. The money saved on lower mortgage payments could be put towards paying off your mortgage faster through lump sum payments or additional pre-payments.

While a rate increase and a higher mortgage payment are less than ideal, there are things you can do to help minimize the impact on your overall financial situation. If you haven’t already created a financial budget, this would be a good time to evaluate your finances and see if there are any other areas where you can cut back or save.

With an MCAP adjustable rate mortgage you have options

While many homeowners will remain comfortable with their adjustable rate mortgage, others may wish to lock-in to a fixed rate term to avoid further potential rate fluctuations.

It’s easy to lock-in to a fixed rate mortgage

If you currently have an adjustable rate mortgage and you lock-in to a fixed rate term of equal or greater length, there is no cost to you. You also retain the same privilege payment options in a fixed rate term as with your adjustable rate term.

When you lock-in to a fixed rate mortgage, you start a new term with a new interest rate. This means that your current term – and adjustable interest rate – will come to an end on the date you lock-in. The fixed interest rate for your new term will depend on the fixed rates available for the term length you choose.

Some terms and conditions may change when you convert your adjustable rate mortgage to a fixed rate. Before signing an offer to lock-in your mortgage, it’s a good idea to review the terms and conditions of the new term, including the prepayment penalty information, to make sure you’re fully informed.

To request an offer for the best available 5-year fixed rate, log into MyMCAP and select “Lock-in to a Fixed Rate.”

Conversions/Lock Ins FAQ

When you lock in, you start a new term, with a new interest rate. This means that your current term, and adjustable interest rate, will come to an end on the date of your lock in. The fixed interest rate for your new term will be determined based on the fixed rates available for the term length you choose, at the time you choose to lock in.

While fixed rates are often higher than adjustable rates, it’s not a hard and fast rule. A fixed interest rate gives you the security of knowing your payment amount will remain unchanged for the length of your term, regardless of changes in the market. This security is typically accompanied by a higher interest rate. An adjustable rate, on the other hand, can often be lower than fixed rates, but it comes with a risk of fluctuations in your rate, and therefore your payment amount over the length of the term. Whether or not the prospect of payment fluctuations is worth the potential for lower payments is up to each individual homeowner; there is no right or wrong choice.

When you move from an adjustable rate to a fixed rate, before your maturity date, it’s called a lock in (or conversion). When you move from a fixed interest rate to an adjustable rate, before your maturity date, it is called an early renewal. The key difference between these two types of transactions is that a penalty will not be charged when you lock in, but it will be charged when you early renew. In short, yes, you can move back into an adjustable rate should you choose to later on, but you may have to pay a penalty to do so before maturity.

If, and when, you lock in your mortgage is a decision that only you can make. To determine if you should lock in, you need to determine what level of rate variation you are willing to risk. The prime rate changes in response to changes in the Bank of Canada’s key lending rate. Although you may hear speculations about upcoming rate changes, we can’t know for sure when this key lending rate will change, or by how much, until it happens. Historically, the prime rate often increases or decreases by 0.25% - 0.50%.