For individuals looking to purchase a home or who need to take out a loan, the prime rate for their bank is something they need to take into consideration before going ahead with their plans.
If you’re a CIBC customer and you’re in a similar situation, you may wonder: what is the prime rate at CIBC, and how will it affect me going forward?
Or, if you’re unfamiliar with what prime rates are and how they are determined, you may like to know more about the subject before making any decisions regarding a loan or mortgage. We’ll answer these and other related questions below, so keep reading!
If you’re new to making financial investments, you may be unfamiliar with the term ‘prime rate.’
A prime rate is the rate of interest that banks charge to customers who are worthy of credit. This rate is used as a baseline when determining the cost of a floating-rate loan.
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Generally, a commercial bank’s prime rate is used in the process of customers signing up for a new credit card or when taking out a mortgage loan for their house.
To determine their prime rate, commercial banks like CIBC will use the Bank of Canada’s (BoC) policy interest rate, or overnight rate, as a guideline. The official prime rate is published on a weekly basis for all commercial banks to use as a reference, which they will generally match.
As the BoC raises its overnight rate, commercial banks are charged more to borrow money. Therefore, to make up the cost difference, banks will raise their own prime rate accordingly.
At this time, CIBC’s prime interest rate is 6.70% and will remain at this number until the next scheduled increase. While this rate may fluctuate based on certain economic factors, fortunately, this will not affect fixed-rate loans, such as mortgages.
Therefore, those who have already signed onto a fixed-rate mortgage can rest assured that their prime rate will remain stagnant until the scheduled date for their renewal comes around.
While the prime interest rate for mortgages will not fluctuate for CIBC customers who have already signed their papers, homeowners looking to sign a brand-new mortgage will likely be faced with higher rates when CIBC’s prime rate goes up.
If potential homeowners received a quote for their new mortgage, they may end up paying more interest once they actually sign the papers.
On the flip side, those with savings accounts through CIBC will actually benefit from a higher prime rate. CIBC will pay savings account holders a higher rate of interest in an effort to encourage them to save more.
Overall, there are both drawbacks and benefits when dealing with CIBC’s prime rate, and knowing how it works and where you’re most affected will ensure you’re better equipped to handle any fluctuation in the rates that may come over time.
The prime rate that a bank charges is a type of interest rate. However, interest rates specifically are generally higher than a prime rate.
Therefore, if CIBC’s prime rate were to rise, the interest you pay on a loan or credit card would also increase on top of the prime rate.
Currently, the official Canadian prime rate is on par with CIBC’s prime rate, coming in at 6.70%.
As touched on above, when the Bank of Canada sets its prime rate, commercial banks such as CIBC will aim to adjust their own rate to cover the costs of borrowing money from the BoC.
Therefore, this would account for the prime rate of a commercial bank like CIBC maintaining the nationwide rate.
The Bank of Canada changes the nation’s prime rate eight times per year. In 2023, the BoC scheduled their announcements of a rate increase or decrease for January 25, March 8, April 12, June 17, July 12, September 6, October 25, and December 6.
However, note that occasionally the Canadian prime rate can change overnight, which may affect the announcement schedule.
Unfortunately, those looking to apply for a loan or mortgage will not be able to reduce the prime rate through negotiations, as this is a fixed number that banks must adhere to until the BoC releases a new rate.
However, CIBC customers can negotiate the interest rate on their loan, provided it doesn’t drop below the price of their prime rate.
Generally, banks will look to charge their customers 2% on top of the prime rate in interest. Therefore, the lowest interest you could likely negotiate is 0.5%.
That said, some brokers may allow you to negotiate the interest down to 0% so that you’re only paying the prime rate. However, this largely depends on your financial circumstances and the individual broker assisting you in this matter.
When a CIBC broker presents new homeowners with the mortgage rate they will be paying, this combines the current prime rate along with the interest they will be charged.
For example, if the current prime rate is 6.70%, and the mortgage interest is prime minus 0.50%, the mortgage rate you will be paying would sit closer to 6.20%.
Overall, the mortgage rate you pay will be based on the current prime rate, which is subject to change.
As previously touched on above, CIBC will match the prime rate given by the Bank of Canada for each year. Currently, this is the forecast for the BoC prime rates for the next four years:
Note that these numbers listed above are predictions and not a guarantee of what the prime rate forecast will look like over the next few years.
CIBC’s prime rate is regularly raised to match that of the Bank of Canada’s prime rate, which is currently 6.70%. For those of you who bank at CIBC, knowing the current prime rate will assist you when you go to your local bank to apply for a loan or take out a mortgage on your house.
While prime rates can rise, resulting in CIBC account holders having to pay more on their loans, they will also gain more by being paid more interest on their savings accounts.
Overall, keeping a regular check on your bank’s prime rate is a great way to ensure you’re well-equipped to take on the burden of loan payments and will help to keep you informed of the economic and financial situation of both your bank and Canada as a whole.
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