In the US mortgage market, this is called curtailment. For example, if you make one extra payment per year, you will shorten a 30 year fixed rate mortgage by about 4.5 years. Also, for most US mortgages, you are allowed to prepay 100% with no penalty. This allows for refinancing.
What I do not understand: Why don't more countries do this? Have large gov't financing companies that guarantee certain fixed rate mortgages? Overall, it is a huge win for the middle class home owner in the US.
>For example, if you make one extra payment per year, you will shorten a 30 year fixed rate mortgage by about 4.5 years.
This doesn't sound right. If I make 5 extra payments (either in 1 year or over 4 years), the mortgage will be shortened by 5 x 4.5 years = 22 years. I'm sure everyone would do this, 5 extra payments is super easy!
You misunderstood my original post. One extra payment per years means 13 mortgage payments, instead of 12. (Almost all US mortgages require monthly payments.) To be clear: This extra payment is strictly optional, but it used to demonstrate how curtailment can meaningfully reduce the life of your loan and the amount of interest paid.
What I do not understand: Why don't more countries do this? Have large gov't financing companies that guarantee certain fixed rate mortgages? Overall, it is a huge win for the middle class home owner in the US.