March 7, 2012 / 10:51 PM / 8 years ago

BMO brings back 2.99 pct rock-bottom mortgage

* Low five-year rate sparked price war in January

* Also introduces 10-year 3.99 pct mortgage

By Cameron French

TORONTO, March 7 (Reuters) - Bank of Montreal is reintroducing the rock-bottom 2.99 percent mortgages that sparked a mini price war among Canada’s banks in January, BMO’s head of personal and commercial banking said on Wednesday.

Canada’s No. 4 lender will offer the 2.99 percent fixed rate on five-year mortgages, amortized over 25 years, and will also introduce a new 10-year mortgage at 3.99 percent, BMO’s Frank Techar told Reuters.

The mortgages will be offered for a three-week period beginning on Thursday. Currently, the bank’s cheapest five-year mortgage is 3.49 percent.

BMO first offered the 2.99 percent rate for a two-week period in January, forcing rival banks to quickly come out with their own versions.

The mortgages drew criticism from those concerned about already high levels of household debt, which some worry could become unmanageable when interest rates eventually rise.

Techar defended the low rate, saying that having it only available on a 25-year amortization loan meant that it would not feed irresponsible borrowing.

“People are not going to stretch to get the largest mortgage they can with a 25-year amortization product. Because the monthly payments are higher, they will not stretch and they will go to a 30-year amortization product,” he said.

Canada’s banks have been reporting first quarter results over the past two weeks, with the common theme so far of higher-than-expected loan volumes. The January low-rate offer fell in the fiscal first quarter.

Analysts have warned that banks will struggle to build revenues due to narrow margins and slowing mortgage lending growth.

Techar said that the customer response to the low rate mortgage in January was “fantastic”.

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