Mortgage Penalties: Desjardins, Nationale, Laurentienne

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Mortgage Penalties at Quebec Regional Banks

For Quebec borrowers, regional banks often represent the first choice for mortgage financing. The Desjardins Group, with its vast network of caisses populaires, Banque Nationale, and Banque Laurentienne are deeply rooted in Quebec's financial landscape. Yet their mortgage break penalty calculation methods present important differences that must be understood before committing.

Desjardins Group

Desjardins holds a unique position in Quebec's mortgage market as a financial cooperative. Regulated by the Autorite des marches financiers (AMF) at the provincial level rather than by OSFI federally, Desjardins is not subject to the same guidelines as chartered banks. For penalty calculation, Desjardins generally applies the rule of the higher of three months' interest and the interest rate differential. The IRD calculation method uses Desjardins' posted rates, which may differ from chartered bank posted rates.

Collateral mortgage: Desjardins primarily uses the deed of trust (collateral charge), making transfer to another lender more complex and costly. A full discharge is necessary, resulting in additional notary and land registry cancellation fees.
Variability between caisses: although penalty policies are increasingly centralized within the Movement, some local caisses may have slightly different practices. It is recommended to verify the specific penalty clause in your contract.
Prepayment privileges: Desjardins generally offers a 15% to 20% annual prepayment privilege on the original balance, which can be used strategically to reduce the balance before breaking the mortgage.
Flexible products: Desjardins offers varied terms (1 to 10 years) and conversion options that can limit exposure to high penalties.

Banque Nationale

Banque Nationale, the sixth-largest bank in Canada and the leading Quebec-owned chartered bank, is regulated by OSFI at the fédéral level. Its penalty calculation method follows the standard chartered bank model: the higher of three months' interest and the IRD calculated from its posted rates. However, Nationale distinguishes itself with its range of mortgage products that offer certain flexibility.

Nationale offers terms from 1 to 7 years as well as variable-rate products. Its posted rates and discount grids are specific to the institution and do not necessarily correspond to those of the Big 5. For this reason, the IRD calculated by Nationale may sometimes be lower than that of the major banks for a comparable scenario. Nationale also offers conventional (non-collateral) mortgages for the majority of its products, facilitating transfer to another lender at renewal without excessive discharge fees.

Banque Laurentienne

Banque Laurentienne, the smallest of the three regional banks covered here, is also regulated by OSFI. It is often considered to offer more flexible mortgage conditions and potentially lower penalties than the major banks. Its penalty calculation method follows the standard formula (three months' interest or IRD), but its comparison rates and discount policies can result in lower penalties in certain scenarios. Laurentienne offers competitive prepayment privileges and portability options that can help avoid or reduce penalties.

Comparison and Recommendations

For Quebec borrowers, the choice between these three institutions must consider not only the interest rate offered, but also the penalty calculation method, the mortgage type (conventional vs collateral), prepayment privileges, and portability options. An AMF-certified mortgage broker can perform a detailed comparative analysis taking into account your specific situation: expected duration in the property, probability of refinancing before the term, and risk tolerance. The LDPSF requires the broker to recommend the product that best serves your interests, which includes minimizing potential penalties.

Frequently Asked Questions

Does Desjardins calculate its penalty like the Big 5 banks?

Desjardins uses a similar method (the higher of three months' interest and the IRD), but its method for determining the comparison rate can differ. As a cooperative regulated by the AMF rather than OSFI, Desjardins is not required to follow exactly the same fédéral guidelines. Policies may also vary slightly from one caisse to another, although centralization is underway.

Why are Desjardins collateral mortgages an issue?

Desjardins generally registers its mortgages as collateral charges (deed of trust), meaning the loan cannot simply be transferred (subrogated) to a new lender at renewal. The client must discharge the existing mortgage and create a new one, generating additional notary and cancellation fees that can total $500 to $1,000 more than a conventional mortgage.

Does Banque Nationale have more advantageous penalties?

Banque Nationale uses a calculation method based on posted rates, similar to the Big 5. However, its posted rates and discount grids may differ, which influences the final penalty amount. Nationale also offers mortgage products with shorter terms (1-year, 2-year, 3-year) that naturally limit exposure to large penalties.

Is Banque Laurentienne a better choice to avoid large penalties?

Banque Laurentienne sometimes offers more transparent penalty conditions and may use comparison rates closer to the actual market. It also offers flexible mortgage products with generous prepayment privileges. However, each file is unique and specific offers must be compared. Your AMF-certified mortgage broker can perform this comparison.

What is the AMF's role in regulating Desjardins?

The AMF is the primary regulatory body for Desjardins in Quebec under the Act respecting financial services cooperatives. The AMF supervises business practices, solvency, and consumer protection. Mortgage brokers are also regulated by the AMF under the LDPSF. This dual supervision aims to protect Quebec borrowers.