Refinancing is not free. There are still costs for any loan like appraisal, possibly an inspection, and recording fees, but some lenders will roll those costs into the loan or offer higher interest rates to offset their costs.

Nonetheless, I’ll take the lower principal of a lower priced house than an over-priced house with a lower interest rate … lower taxes and possibility to refinance at lower rates.

Not sure what you mean by free. But there are time time frames where you are barred from refinancing (not within 6 months of closing on a mortgage - including the refi, so you are in a timing the market kind of situation), and the fees (appraisal, closing costs, origination, points, etc.) that go along with refinancing are usually pretty steep.

It's not free; it usually costs a few thousand dollars, so there is a payback calculation to make.

Free in the sense you don't pay a penalty.

In Canada, if you refinance before your mortgage term end it's typically to pay 3 months of interest as penalty or the difference between your new rate and the old rate until the term ends.

It's pretty damn punitive.

What's the rationale behind that? That's really a penalty for early repayment - is it set by law, or is it just something that is part of a standard Canadian mortgage contract?

30-year fixed rate mortgages should not exist.

They only exist in the US and Denmark: https://www.thediff.co/p/the-30-year-mortgage-is-an-intrinsi...

And they only exist because of A LOT of government intervention.

If interest rates don't continue to only go down - I imagine you'll see them disappear in the US and Denmark.

US & EU banks mostly make their mortgage profits from constantly refinancing at ever lower rates.

You are right that they wouldn’t normally exist without government intervention.

But banks don’t profit off the interest rate on mortgages. It’s mostly origination fees. Mortgages are sold off immediately. They don’t hold onto them.

It’s just standard. The standard Canadian mortgage contract is for a 5-year term with a fixed rate. Variable rate mortgages have notably lower costs to end early. (Early repayment terms are typically something like “can optionally pay up to 15% extra per year without penalty.”)

Here in Sweden if I have a fixed rate mortgage and want to repay early or refinance at a lower interest rate, I have to pay a penalty which is essentially equal to what the bank is losing in out on in 'missed' interest payments.