What is the Relationship between Canada’s Prime Rate, Interest Rates, and My Mortgage Rate

Although we hear a lot about the Bank of Canada’s Prime Lending Rate, many mortgage rates are not based on the Prime Lending Rate.  One of the most popular mortgage programs is the Fixed-Rate Mortgage.  In the fixed-rate mortgage, the mortgage is locked into a fixed interest rate for the duration of the loan term.  In this type of loan, your interest rate does not fluctuate with the Bank of Canada’s Prime Lending Rate, the fixed-rate always stays the same.  

So, if fixed-rates don’t fluctuate with Canada’s Prime Rate, what are they based on?  Typically, fixed rates are directly related to Bond Yields.  Bond Yields trade off on economic reports and relative yields of other securities.  In essence, when the country is experiencing tight economic conditions, or there is a prediction of a downturn in the economy, fixed-rates usually adjust accordingly, and rates lower.  Although fixed-rates adjust, once your mortgage is written, your rate will remain the same for the duration of your loan.  It is new loans that are written at the adjusted rate.