How Do Prime Rate Changes Affect Your Mortgage?

March 22, 2022

Key points:

  • Each lender has different policies for introducing changes to your mortgage payments after a prime rate increase
  • An adjustable rate mortgage (ARM) means your monthly payments won’t change even when the prime rate increases or decreases

Prime rate changes and your mortgage

Today, we tackle a common question I receive after a rate increase: How does this affect my mortgage payments? Depending on your mortgage type and lender, your mortgage may experience a variety of impacts. Let’s explore what it means for you.

Don’t feel like watching? Find the full transcript below!

Chris: [00:00:00] Today, we’re going to discuss exactly what happens to your mortgage when the Bank of Canada announces a change to the overnight lending rate. So first off, a reminder of exactly what it means to have a variable or adjustable rate mortgage. Sometimes there’s this misconception that the rate that you’ve negotiated is the rate, which is false. So what you’ve actually negotiated with your lender is a formula of prime plus or minus a certain factor. So what that means is that as the Bank of Canada changes the prime rate either up or down, the prime rate on your mortgage is going to fluctuate accordingly. And therefore, your monthly payments will need to be adjusted to reflect the changes in the interest rate on your variable or adjustable rate mortgage.

Different lender policies

Chris: [00:00:54] Each mortgage lender has a slightly different policy when it comes to implementing changes to your mortgage when the prime rate changes. Some make the change immediately. So if the prime rate goes up, your payment goes up. If the prime rate goes down, your payment will go down. Other lenders will give you time to adjust. So they have a policy that says prime rate changes. Your next payment will stay the same as it was before. And then after that, that most recent payment, the next payment, they will implement the change, giving you time to adjust. And yet further still, other lenders will actually make the change after the first payment of the first of the month of the month following a change to the prime rate. So you have to follow that one. So change of prime rate happens. No changes to your payments in that month. And then on the first of the month of the following month, your payment will change.

Adjustable rate mortgages (ARM)

Chris: [00:01:55] Now, there’s one type of mortgage worth discussing here, which is an adjustable rate mortgage or ARM as the acronym for short and in an ARM or adjustable rate mortgage, when the prime rate fluctuates, your monthly payment will actually stay unchanged. So that means that as the prime rate goes down, you’re actually paying your mortgage off more quickly because less interest is being paid, but your payment stays static and the opposite is also true, so that as the prime rate increases, if your payment stays static, then that means that it’s taking longer to pay off your mortgage. You should check in with your lender to confirm whether you have an adjustable rate mortgage or variable rate mortgage and determine exactly how changes to the prime rate will impact you specifically.

Need more help or information?

Chris: [00:02:48] My name is Chris Molder. I am a Toronto based mortgage broker. If you’re looking for more information about changes to the prime rate, your mortgage, variable rate mortgages or even adjustable rate mortgages, I’m just a phone call or an email away. Bye for now.

Need to get in touch? Book a call directly via my calendar below, or get in touch with me here.


Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too. He’s a second generation mortgage broker. Following in his father’s steps he joined the family mortgage business straight out of university.