Prime at 4.45%: The 220 Basis Point Gap With the Policy Rate

The Bank of Canada is holding its policy rate at 2.25%, and plenty of borrowers are surprised to be paying far more on their line of credit. The reason comes down to a rarely quoted number: prime stands at 4.45%. That is the rate doing the work, as noted in our August 2026 renewal guide.

Two rates, two distinct roles

The policy rate, at 2.25%, is a monetary policy instrument. It frames operations between financial institutions and signals direction to the wider economy. It is the number headlines repeat after every Bank of Canada announcement.

Prime, at 4.45%, is something else: it is the reference rate banks apply to their own customers. No individual borrows at 2.25% in Quebec, and none will. Conflating the two is the most common source of confusion when reading a home equity line of credit statement.

Where the 220 basis points come from

The gap between 2.25% and 4.45% is neither arbitrary nor individually negotiable. It covers what the policy rate does not: the bank's actual funding cost, the credit risk it carries on its borrowers, its operating expenses and its margin.

That spread is structural and generally moves as a block with the policy rate. When the Bank of Canada cuts, prime falls by a comparable amount; when it raises, prime rises. The distance between them stays roughly constant. Which is why following announcements without knowing the current prime tells you the direction and never the amount.

What prime actually drives

Prime anchors home equity lines of credit and a share of variable-rate loans. These products are almost always expressed as a formula: prime, plus or minus a spread set in the contract. Your real rate is therefore calculated from 4.45%, never from 2.25%.

A fixed-rate mortgage does not depend on prime. It follows the bond market, which is why it can move in a different direction at the same moment. That is exactly what is happening this summer: the insured 5-year fixed sits at 3.94% and the 5-year variable at 3.45%, while prime holds at 4.45%. Three numbers, three different mechanics.

The practical consequence is that these products do not compare cleanly against one another. A home equity line of credit, a fixed mortgage and a variable mortgage share neither the same rate mechanism, nor the same repayment flexibility, nor the same treatment when the property is sold.

Why a pause does not change your statement

The policy rate held at 2.25% on July 15, 2026. It was the sixth consecutive hold, and the next announcement is due September 2, 2026. As long as the policy rate stays put, prime remains at 4.45%, and the cost of a home equity line of credit is rigorously identical from one month to the next.

This answers a common and disappointed expectation: a pause brings no relief, it maintains the status quo. A borrower hoping to watch their statement lighten by following announcements has been waiting on a move that has not come six times running. Relief, if it arrives, will come from a cut, not from stillness.

Reading the cost of an existing line

If you already hold a home equity line of credit, three checks tell you where you stand. First, find the formula written into the contract, usually prime plus a spread. Second, apply it to the current prime of 4.45% to get your real rate. Third, confirm whether your monthly payment covers principal or interest only, because both structures exist and they do not produce the same outcome over five years.

This article explains a cost. It recommends nothing. Taking out a home equity line of credit, raising its limit, or moving other debt onto it are decisions that depend on your full situation: income, other commitments, time horizon, tolerance for rate risk. That kind of arbitrage belongs with a mortgage advisor or a financial planner, not with a blog article.

The one thing we can contribute on the real estate side sits upstream: the amount an institution agrees to secure depends on the property's current value, not on the price paid at purchase. Knowing that number, up to date, is useful before any financing discussion, whatever it concludes.