top of page
  • Writer's pictureJames Mckeown

Understanding Fixed-Rate Mortgages: Why They Aren't Tied to Prime Rate

Author: James McKeown


In today's blog post, we're tackling a common misconception in the Canadian mortgage world: the belief that fixed-rate mortgages are based on the prime rate. This is a vital piece of knowledge for homeowners and potential buyers across Canada.

Understanding Fixed Rates in Canadian Mortgages

Fixed-rate mortgages offer a secure and predictable financial path for homeowners. By locking in your interest rate for the entire term, you ensure that your monthly mortgage payments remain constant. This stability is a significant advantage in financial planning.

The Role of the Prime Rate

Let's first demystify the prime rate. This rate is the benchmark that commercial banks use for their most creditworthy customers, often influenced by the Bank of Canada's decisions.

Distinguishing Fixed Rates from the Prime Rate

Here's the key: fixed mortgage rates are independent of the prime rate. In Canada, fixed rates are mainly influenced by the bond market, particularly government bonds like the Canada Mortgage Bond. The yields on these bonds serve as a guideline for setting fixed mortgage rates.

Why This Matters to Canadian Homeowners

For Canadian homeowners or those in the home-buying process, understanding this distinction is vital:

  1. Consistency: Fixed rates provide a dependable framework for your mortgage payments, shielding you from fluctuating market conditions.

  2. Effective Financial Planning: Knowing your exact monthly payment makes budgeting simpler and more effective.

  3. Market Trends vs. Policy Changes: Unlike the prime rate, which is subject to immediate policy shifts, fixed rates reflect broader, long-term economic trends.

Making an Informed Mortgage Choice

Choosing between a fixed-rate mortgage and other types, such as variable-rate mortgages tied to the prime rate, depends on your personal financial situation and preferences. A knowledgeable mortgage broker can offer valuable insights and guidance in this decision-making process.


In the Canadian mortgage market, understanding the nature of fixed-rate mortgages and their independence from the prime rate is essential. This knowledge empowers homeowners and buyers to make informed decisions about their mortgage options.

Need Expert Mortgage Advice?

As an experienced mortgage broker, I am dedicated to helping you navigate the complexities of Canadian mortgages. Reach out for personalized advice and find the ideal mortgage solution for your needs.


Author: James McKeown


bottom of page