You may have heard the terms Bank of Canada Rate and Prime Rate in the media recently. You may be wondering what they mean and if they mean the same thing or if they have different meanings. The two terms are similar in sound but have two different meanings.

The Bank of Canada Rate is the banks primary tool for influencing Canada's economy it is decided eight times a year and determines the interest charged when the banks lend money to each other or other financial institutions, it also influences other rates such as the Prime Rate.

The Prime Rate is the interest rate that the financial institutions offer their customers.

An adjustable rate or variable rate mortgage is tied directly to the Prime Rate. As the Prime Rate increases or decreases the interest rate you have on your adjustable or variable rate mortgage would increase or decrease.

If your mortgage is an adjustable or variable rate mortgage your interest rate would be set according to a formula which is the Prime Rate plus or minus a percentage. This percentage would have been agreed upon when you received or renewed your mortgage. The plus or minus amount will always be the same throughout your term. The payment amount will change as the Prime Rate changes.

 If your financial institution's Prime Rate changes you will be notified through email or mail shortly after the Prime Rate adjusts. Typically the Prime Rate change will affect your next months bill. For example if the Prime Rate changes on January 10th your adjustable or variable interest rate changes the first day of the following month.