TARGET OVERNIGHT%What banks pay to borrow overnight from each other
PRIME RATE%Base rate for variable mortgages, LOCs, business loans
BANK RATE%Emergency lending rate to commercial banks
POLICY RATE · LAST 24 MONTHS
WHAT THIS MEANS
The policy rate is the lever.
When the BoC raises the target overnight rate, banks pay more to borrow short-term funds. That cost gets passed through to you as: higher prime rate → higher variable mortgages → higher HELOC payments → higher business loans.
When the BoC cuts, the opposite happens. Variable mortgages drop within hours. Fixed mortgages (which track 5-year bond yields) move slower.
PASS-THROUGH MATH
+25 bps BoC hike= +25 bps prime$500k var mortgage: +~$75/mo
+50 bps BoC hike= +50 bps prime$500k var mortgage: +~$150/mo
−25 bps BoC cut= −25 bps prime$500k var mortgage: −~$75/mo