20 year fixed interest rates are a thing in Germany. With an option for mortgage owner to buy out the lender after 10 years without additional costs. 5-10 years fixed rates are cheaper but way to risky IMHO.
The lending bank finances the mortgage on the financial markets, the spread between their interest rate and the one the bank clients get is the banks profit. Part of the terms and conditions are that those profits for the bank are what you, as the oerson taking the mortgage, owns the bank for the duration of the interest rate fix. That is capped so, by law, at 10 years. Partial down payments are negotiable, e.g. 10% of the initial loan per year. Anything above that, and prior to that 10 years, will incure the clients obligation to cover the banks lost profits (part of what you agreed to pay the bank). If the explanation makes sense.
Canada is similar - usually you can prepay up to 15%/year, but any more than that and you need to pay a penalty (which seems to be calculated based on the interest they would lose). Also the yearly prepay amount is use it or lose it.
20% lose-it-or-lose-it yearly is my experience in Canada, and I believe that's on top of being allowed to make double payments.
And yes, the prepay penalty is generally based on the interest they would lose or a few month's interest, whichever is better for the bank at the time of payment.
But also note that if you paid the extra for a 10-year, Canadian federal law says you can prepay 100% at any time after 5 years with no penalty (or virtually no penalty?). Which is part of why longer-term mortgages are markedly more expensive.
Another interesting aspect of Canadian mortgages (as opposed to US ones) is that you can't just walk away if the mortgage is underwater (which is what a pot of people in the US did after the GFC). The bank can come after you for the difference between house value and mortgage.
> In the US, I have never read about not being able to pay or a penalty for paying the entire mortgage at anytime.
My parents (we're all American) were always very careful to check that early repayment didn't come with a penalty, on mortgages and all other loans, so I assume it used to be a thing. I've always asked (following their example) and not once had the answer be "yes, there's an early-repayment fee" so maybe it's a whole lot less common than it used to be.
If I'm not mistaken US mortgage rates are several percentage points above what they would be if prepaiment was not "free". You have to pay for that option some way or another.
You can find them but they’re rare, because it messes up the resale of the loan.
Our 80/20 loan back in the countrywide heyday had a prepayment penalty on the 20 which also had a balloon. We structured our refinance to avoid the penalty.
If so, I wonder why the option is not offered when shopping for a mortgage. I have a 2.5% 30 year fixed, so it is hard to imagine a 0.5% loan, with an early repayment penalty since I would have no incentive to pay it off early anyway.
Negative interest rates were hard to imagine a few years ago but they have been a reality in many parts of the world for several years. Maybe it's not multiple percentage points and it's around one, I don't know the specifics of the calculations. But the prepayment risk in principle has to be compensated. Otherwise lenders would have no incentive to lend money to you - if you can pay it off early anyway.
"The prevalence and handling of prepayment risk differs in two respects between Europe and the US. First, while in the US prepayment costs may be priced into the interest rate, in many European countries lump-sum prepayment penalties are induced by statutory requirements. Often banks impose charges on homeowners for early repayment. These fees force households to bear part of the prepayment risk and, if the fees are sufficiently high, may deter homeowners from prepayment, thereby nullifying the prepayment risk faced by banks. An exception to this is the Danish mortgage market, where long-term fixed-rate mortgage loans with an embedded option of a penalty-free prepayment are typically offered, as in the US."
