Credit Unions: Desjardins Mortgage Penalty Calculation

Q: How does Desjardins calculate the penalty on a fixed rate?

Desjardins applies the greater of 3 months' interest and the interest rate differential (IRD). The IRD is calculated by multiplying the spread between your contract rate and Desjardins' comparison rate for the remaining term, by the mortgage balance and the number of months remaining, divided by 12.

Q: Is Desjardins' comparison rate an inflated posted rate?

Desjardins uses its own rate schedule for comparison. The method may vary depending on the mortgage product type. It is essential to ask your caisse advisor or your broker to precisely explain the comparison rate that would be used in the event of a break.

Q: Are there advantages to being a Desjardins member for penalty purposes?

Member status does not directly reduce the break penalty, which is calculated according to the contract terms. However, members receive an annual patronage dividend based on business conducted with the caisse, which can partially offset the cost of a penalty over the long term.

Q: Can local caisses offer different conditions?

Yes, to some extent. Local caisses retain autonomy for certain conditions, although central Desjardins Group policies govern the base rules. Some caisses may offer mortgage products with penalty conditions specific to their local market.

Q: Is Desjardins regulated by OSFI like the big banks?

No. Desjardins is a provincially chartered financial cooperative regulated by the AMF under Quebec's Act Respecting Financial Services Cooperatives. However, AMF prudential standards are aligned with international standards and OSFI practices.

Q: Is the variable rate penalty at Desjardins different?

As with most Canadian lenders, the variable rate penalty at Desjardins is generally 3 months' interest. There is no IRD calculation on variable rates, making the penalty predictable and generally less costly.

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Credit Unions and Cooperatives: Penalties at Desjardins

The Desjardins Group is a pillar of Quebec's financial system. Founded in 1900 by Alphonse Desjardins, it now brings together the caisses populaires and caisses d'economie of Quebec under one cooperative umbrella. With over 7 million members and the largest share of the mortgage market in Quebec, Desjardins is the first lender many Quebecers do business with. Understanding how this institution calculates mortgage penalties is therefore essential for any borrower in the province.

The Cooperative Structure and Its Impact

Desjardins distinguishes itself from big banks through its cooperative structure. Each caisse populaire is an autonomous cooperative whose members are the owners. This structure is governed by Quebec's Act Respecting Financial Services Cooperatives and supervised by the AMF. Unlike federally chartered banks regulated by OSFI, Desjardins operates under a provincial regulatory framework. Nonetheless, the prudential standards applied by the AMF are aligned with international Basel standards and OSFI practices.

Penalty Calculation at Desjardins

For fixed-rate mortgages, Desjardins applies the higher of two calculation methods: 3 months' interest on the mortgage balance or the interest rate differential (IRD). The IRD is calculated by determining the spread between the borrower's contract rate and the rate currently offered by Desjardins for a term matching the remaining contract duration. This spread is then multiplied by the mortgage balance and the remaining duration fraction.

For variable-rate mortgages, the penalty is almost always equivalent to 3 months' interest. There is generally no IRD calculation on variable products, making the penalty predictable and considerably less costly than on a fixed-rate product.

Desjardins' Comparison Rate

The comparison rate used by Desjardins for the IRD calculation is determined by its rate schedule in effect at the time of the break. It is important to verify with your caisse advisor which exact rate will be used, as this directly influences the penalty amount. Some Desjardins mortgage products may have different comparison conditions, depending on whether it is a conventional product or a product with less than 20% down payment insured by CMHC.

Local Caisse Particularities

While the central Desjardins Group policies define the general framework for penalty calculations, local caisses retain some autonomy in their product offerings. Some caisses may offer exclusive mortgage products with particular conditions. It is therefore wise to compare your local caisse's offers with those of other lenders, through your AMF-certified mortgage broker.

Closed fixed-rate mortgage: penalty = greater of IRD and 3 months' interest. IRD is calculated using the Desjardins rate schedule for the remaining term.
Variable-rate mortgage: penalty = 3 months' interest in the vast majority of cases. No IRD calculation.
Open fixed-rate mortgage: generally no break penalty, but the interest rate is higher to compensate for this flexibility.
Products with prepayment privileges: using your prepayment privilege before breaking can reduce the balance on which the penalty is calculated.

Tips for Desjardins Borrowers

If you are considering breaking your Desjardins mortgage, the first step is to contact your caisse to obtain an exact penalty calculation. This calculation is provided at no charge and allows you to make an informed decision. Then compare this penalty with the potential savings from refinancing or transferring to another lender. Do not hesitate to consult an independent AMF mortgage broker who can compare Desjardins' offer with those of other lenders available on the market. Remember that the mortgage contract registered at the Quebec Land Register under CCQ rules protects your rights, regardless of the lender chosen.