Canadian financial institutions have begun to slash their mortgage rates amid lower borrowing costs in the bond market and more competition for mortgage business.

BMO Bank of Montreal was the first to announce lower rates. Effective Wednesday, a five-year closed mortgage will carry a posted rate of 6.65 per cent, a drop of a little more than a third of a percentage point.

Bigger cuts apply to shorter-term mortgages. BMO's one-year closed mortgage drops 8/10ths of a percentage point to 6.15 per cent. Its two- and three-year closed mortgages tumbled by 0.85 of a percentage point to 6.15 per cent.

These are all posted rates. Many consumers are actually able to get closed mortgages at rates that are a full percentage point or more below the posted rates. BMO, for instance, said its "special offer" rate for a five-year mortgage will drop to 5.59 per cent, down 0.34 of a percentage point.

Laurentian Bank and Desjardins Group's caisses populaires and credit unions in Quebec and Ontario announced similar cuts Wednesday, effective on Thursday. TD Canada Trust soon followed.

Since December, the Bank of Canada has slashed its key overnight lending rate by 1.5 percentage points to three per cent as it tries to stimulate the Canadian economy. But until this week, cuts to fixed mortgage rates have been relatively modest as the credit crunch made it more costly for banks to raise money.

The wide spread between mortgage rates and government of Canada bond yields with the same maturity has since lessened somewhat, but one economist said these big rate drops may be due more to competition.

"This looks to me like more of a competitive move on BMO's part to boost its share of new mortgages," Ted Carmichael, chief economist at JP Morgan Securities Canada, told CBCNews.ca. "It may be an indication that mortgage activity is slowing down."

Despite Wednesday's higher-than-expected April inflation reading from Statistics Canada, most economists still see at least one more rate cut from the central bank.

Recent housing start numbers and real estate sales figures point to a cooling in Canada's housing market from last year's record pace.