What Is Prime Rate and the Mortgage Spread in Alberta?
Short answer
Prime rate is each lender's benchmark floating rate, usually tied to the Bank of Canada overnight rate. Your mortgage spread is the fixed discount or premium added to prime for your term — for example, prime minus 0.85%. Your contract rate is prime plus the spread, and it changes whenever prime moves.
The plain-English version
Prime is not one universal number set by the government — each chartered bank sets its own prime, though they usually move in lockstep. Mortgage brokers and lenders quote variable products as a spread off prime because the spread stays constant while prime fluctuates. A better spread (deeper discount) saves you money at every prime level.
Spreads vary by lender, product, and your profile. Insured mortgages, higher credit scores, and larger down payments often qualify for tighter spreads. At renewal or when switching lenders, you negotiate a new spread — it does not carry over automatically from your old mortgage.
Alberta-specific considerations
- Alberta borrowers should compare spreads, not just prime — two lenders at the same prime can cost different amounts if spreads differ by 0.10%–0.20%.
- Credit unions may use a different base rate than chartered-bank prime — confirm how your contract defines the floating benchmark.
- During renewal season, competing for your business may improve your spread even if prime has not changed.
Example scenario
Lender A offers prime minus 0.75% and Lender B offers prime minus 0.95%. At prime 6.45%, those are 5.70% and 5.50% respectively. On a $350,000 mortgage over 25 years, the 0.20% spread difference is roughly $40/month — about $4,800 over five years before any prime changes.
Common mistakes to avoid
- Comparing only the starting contract rate without checking the spread and which prime rate applies.
- Assuming your spread improves automatically at renewal — you must negotiate or shop again.
- Ignoring that some lenders use "prime" definitions that differ from the Big Six.
- Focusing on a cashback offer while accepting a worse spread that costs more over the term.