bank of montrealAUGUST 22 UPDATE: TD Bank has joined Canada’s other banks in hiking mortgage rates. Its special five-year rate increased to 3.79 per cent and the closed five-year rate was bumped to 5.14 per cent.

UPDATE: Since this article was published RBC has also announced that it will be raising the rate on its fixed five-year closed mortgage (to 5.34 per cent) and five-year special mortgage (to 3.89 per cent).

Original Story: Six months ago the Bank of Montreal threw Canadian policymakers for a loop when it announced it would offer a competitive 2.99 per cent five-year fixed mortgage rate.

It was a controversial move that miffed Canadian Finance Minister Jim Flaherty. The 2.99 per cent promotion ended after only a few weeks as the bank raised rate back to 3.09 per cent and it has climbed higher since.

On Tuesday, BMO announced that it will raise the interest rate on the five-year, fixed mortgage even higher to 3.79 per cent from 3.59 per cent, in a move that the Wall Street Journal says could “spur a chill in Canada’s still-hot housing market.”

The rate remains somewhat competitive when compared to TD Bank and CIBC’s rates of 3.69 per cent for similar five-year, fixed mortgages. Wall Street Journal writer David George-Cosh also points to, noting that some other lenders are offering rates as low as 3.29 per cent.

“Still, BMO’s latest move could take a toll on a housing market that’s shown few signs of slowing,” writes George-Cosh.

The latest report from the Canadian Real Estate Association (CREA) found both Canadian home sales and prices rising in July, but the association maintained that the market is flattening out overall.

“Canadian home sales have staged a bit of a recovery in recent months after having declined in the wake of tightened mortgage rules and lending guidelines last year, but the numbers for July suggest that national activity is leveling off at what might best be described as average levels,” said Gregory Klump, CREA’s Chief Economist, in a news release.

While the BMO rate hike may seem relatively insignificant, it does point to the broader trend of beefing up lending restrictions and hiking rates.

How much will the rate hike affect Canadian home sales? We’ll probably need to wait for another few CREA reports before we find out.

Photo: AdolfGalland/Flickr

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