Desjardins is one of Canada’s largest mortgage lenders with $83.2 billion under their mortgage books. They offer a large suite of mortgage products, from fixed- and variable-rate mortgages to home-equity-lines-of-credit. One of their more unique mortgage products is the 5-in-1 Yearly Resetter Mortgage Loan. Desjardins believes this product will suit consumers who prefer stable payments, but have some tolerance for mortgage rate fluctuations.
The 5-in-1 Yearly Resetter Mortgage Loan is based on a 5-year term and is part fixed-rate mortgage and part variable-rate mortgage. It functions as a fixed-rate mortgage because the rate will remain fixed for one year. However, at the start of each new year, the mortgage rate will be reset, which is where the variable-rate portion comes into effect. The borrower will face the risk of their rate increasing during the course of their mortgage term.
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Desjardins is offering a promotional fixed rate of 2.99 per cent for the first year of the mortgage loan. However, at the end of each year, the new fixed rate will be reset to 0.20 per cent (or 20 basis points) off of Desjardins’ 1-year fixed rate. With the 5-in-1 Yearly Resetter, consumers know there will be four annual rate changes during the 5-year term of their mortgage rate.
A sample breakdown of the 5-in-1 Yearly Resetter Mortgage
We will use a mortgage payment calculator to determine what a monthly mortgage payment might look like on a $350,000 conventional mortgage, amortized over a 25-year period. Due to the uncertainty of knowing what Desjardins 1-year fixed rate will be in the future, we will assume a yearly rate increase of 0.15 per cent (15 basis points) from the current market rate.
- Rate hold of 90 days
- 15% annual lump sum prepayment amount
- 100% monthly prepayment increase
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Desjardins states that the 5-in-1 Yearly Resetter mortgage is ideal for those who want a stable payment structure, but wish to take advantage of low mortgage rates to pay off their debt faster. We spoke to Steve Levine, a mortgage broker in Quebec with True North Mortgage, to get his professional opinion.
“It’s a good product, however, there are certain aspects of the mortgage that Canadians need to take into consideration. The interest rate in the first year of the loan is a great rate, but what happens to that rate every year afterwards carries some risk. That risk may make it difficult for some to plan their budget. Will you properly account for an interest rate increase if it happens? To determine whether your mortgage was superior to a standard 5-year fixed rate, you would have to look at what you average rate was over the 5-year term. Did it outperform the standard 5-year fixed mortgage that was being offered at the time? Any consumer looking at this product needs to understand this. You should always sit down for a proper evaluation.”
A 5-year fixed rate of 2.99 per cent on a $350,000 mortgage, amortized over 25 years, will yield a monthly mortgage payment of $1,655 for the duration of the 5-year term. Not only will this allow consumers to budget their mortgage payments with confidence in advance, but will outperform the Desjardins product in an increasing interest-rate environment. So, the best time to acquire the 5-in-1 Yearly Resetter mortgage would be during times when interest rates are expected to decline (such as after the financial crisis in 2008).
Whether this product is a viable choice for your mortgage needs or not depends on where you see interest rates heading in the future. If you believe 1-year fixed rates (which the rate is based upon) will rise, this product may not be the best choice for you. However, if you believe rates will plummet over the next few years, then Desjardins’ 5-in-1 Yearly Resetter Mortgage Loan may be a viable option for you.
Desjardins is the largest financial co-operative group in Canada with 5.6 million members and an $83 billion mortgage portfolio. Use Ratehub.ca’s charts to compare Desjardins mortgage rates to other major lenders across Canada.
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