[Phillipharryt]

I can't find all the fine details on this loan, but there are definitely loans that stop you from prepayment, or at least have a penalty associated with them. These penalties can be pretty large and definitely are a reason not to pay back the entire mortgage before 10 years. In this exceptional case I'm assuming there is a prepayment penalty for a large portion of that 10 year fixed rate period.

[kgwgk]

The discussion is about 10-year fixed rates. After 10 years you can either refinance or pay (and it’s not an anticipated payment), or maybe it’s already stipulated that the rate after 10-years is floating (but then cancellation is also much easier than in the middle of a fixed-rate mortgage).

[systemtest]

Those prepayment fines are basically what the bank is losing out on you. If you have a 3% mortgage and the current rate is 2%, then the bank would lose out 1% for the current mortgage period. That's the penalty.

[Phillipharryt]

That is not how the penalties are worded at all. Penalties are usually in the form of a percentage of a number of months' interest. I understand the fine is because the bank makes money on loans by being able to rely on them being a fixed long term, and the cancellation affects that, but it's not just the bank passing on that percentage loss directly.

[systemtest]

Perhaps it's a country thing. Here in the Netherlands that is how the banks calculate the prepayment fine. You are allowed to pay off 10% to 20% of the original sum per year but over that amount you pay a "boeterente" (interest-fine). It's equal to the amount of money the bank loses by loaning your money to someone else over the remainder of the fixed period (10/20/30 years).

[Dylan16807]

It's pretty ridiculous if the penalty isn't specified by the contract...

Whatever new rate you might get is not the business of your previous loan holder.

[systemtest]

They are specified in the contract. If you sign the mortgage contract you are giving the bank steady business for the next 10 years in return of a lower rate. By breaking that 10 year agreement the bank loses money which they will charge you for.

[Dylan16807]

If the early payment penalty is based on the current rate, then it's not what I mean when I say "specified by the contract".

[kgwgk]

It all depends on the contract. You can get a not-so-low rate that gives you the option of prepayment (with some fixed penalty).

[adamlett]

I should have been more clear in my comment. What I meant was: There is no requirement that the maturity of a mortgage should be 30 years exactly.