Overnight Rate

Overnight Rate? Prime Rates? Variable Rates?

What is the difference and how are they related.

Let’s take a look at how these are all connected

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Overnight Rate

The overnight rate is a percentage charged by the Bank of Canada when financial institutions lend money between themselves. This rate is the BOC’s primary tool for controlling the economy, preventing inflation and recessions, and stimulating the economy. 

Prime  Rate?

Prime rate is the baseline lending rate which banks offer to their customers. It floats at a constant rate above the overnight rate. Variable rate mortgages  are offered at +/- prime. If you have a rate of “prime -1” then your rate will adjust according to prime rate of your lender. 

Variable Rates?

Variable rate mortgages, unlike fixed rate mortgages, can adjust mid-term. When a bank changes its prime rate in stride with the overnight rate your mortgage rate will follow suit. So when the BOC raises their rate by .5% your variable rate will also increase by .5%.

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Meet The Author

Josh Tagg started his career as a mortgage broker in 2006. During his award-winning career, he has helped thousands of individuals and families secure mortgages for their homes. 

Josh Tagg

Josh Tagg

Owner, Mortgages For Less

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