That's just the beginning. My favorite is the concept of the pre-payment penalty: a lender can (in some jurisdictions) charge you a fee if you attempt to pay down the principal on your loan sooner than you are required to.
It’s somewhat reasonable. If you make a loan, and it’s paid early, you stop making the expected profit and there is no guarantee you can reinvest the funds at the same rate. Therefore you will either disallow prepayment, charge for it, or price the risk of prepayment into your interest rate. If you can’t do any of those … you will invest elsewhere until the rates go up, for there is lots of competition for capital.
But borrowers should know what they’re getting into, and have options.
In the US that would be part of the particular loan contract.
It means you have to pay attention when borrowing, but loans with that penalty likely carry a slightly lower rate for the borrower (because they are predictable for the lender). It isn't entirely arbitrary.
That's normal. You signed a contract where you take X money and promise to return X+Y money over N years. But instead, now you want to return only X+Z money when Z<Y. In some cases, it's ok, but it doesn't have to be. In fact, there could be loans where you just don't have such an option. E.g. if you buy government bonds, the government can't just give you back the money you spent and take the bond back. The fee is an intermediary option - you can do it, but for a fee. Sometimes, if they really want your money, they could give you the option for free - at least you'd pay Z, it's better than nothing. But it's no law of the universe that they must.
It's supposed to compensate banks for lost profit from you not paying interest for the entire term. Equally, a bank can't cancel your mortgage before the term ends for the sole reason that it would be able to charge higher rates for a new mortgage.
