In The Netherlands, long term mortgages (mine is 20 years fix interest at the moment) come and go. If interest rates are likely to go up, it typically doesn't make sense to have a long fix interest period. It will cost a huge premium if offered at all.

If interest rates are going down or are stable, it does make sense for banks to offer them. Or course it can be tricky to decide if a long fixed interest period is smart of not.

Banks do impose a fine if you try to refinance a mortgage during a fixed interest period and the current market interest is lower.

I don't see negative externalities in this system. But maybe I missed something.

In the USA there’s a fee for refinancing as well, but it is usually a fraction of the loan principle and it is often rolled into the loan - so at the end of the day, the net effect is a lower monthly payment for the homeowner and that’s all they really care about.

That is fine. You can't really call it an externality if there is a fine for refinancing at a lower interest rate. All that matters is that the original lender collects a suitable fine when the mortgage is terminated.