The big banks have slashed their posted 5-year fixed rates over 1/3%, to 6.65%.  Their “discounted” rates are now about 5.59%.

The move was the biggest cut to posted rates in over nine years, and it’s about time.  Despite the fact that lenders’ cost of funds have come down, Canadians have been stuck with abnormally high fixed-rate/bond spreads for weeks.  

BMO was first to announce the rate cut (this is a rarity for BMO).  CBC quotes JP Morgan’s Ted Carmichael as saying: “This looks to me like more of a competitive move on BMO’s part to boost its share of new mortgages.  It may be an indication that mortgage activity is slowing down.”

As for the best fixed rates, the deep discounters are still leading the way.  In fact, we saw research today showing a steady two-year uptrend in the spread between commercial banks and discounters (like ING, PC Financial, etc.).  In other words, the discounters have been increasing their fixed-rate advantage over the banks since 2006.

We’d be surprised if this trend continued.  There’s far too much competition out there for the big banks to play dead much longer.  Banks are already making big inroads in the variable-rate market.  Their fixed-rate attack might happen sooner than we think.