You mentioned it was 3% interest only however the math calculates to a payment of around $3950 a month if it is amortized at 3% and 30 years starting with a unpaid principal balance of $937,000.  

For me, it's the principal of the matter.

Amount of current mortgage principal balance2.

They have an ethical and licensing duty to be honest and truthful, and they cannot act against their Principal client, who you are not.  

My mortgage would go up $781 for the next 30years,  the ADU income would more than cover & I hope to pay extra principal to cut my loan time -it's just I was hoping to pay off ADU within 5.5yrs- so that I can collect 'all' ADU income at that point <I'm fixed income & I lose 'some' personal income in 5yrs so trying to plan ahead on how to recoup that>.

Loan Commitment states: "There is a prepayment penalty of 1% on the loan for any partial or full principal reduction payments made before the end of the fifth year.

We say we'll go 85% on that product, but honestly, it's hard to find a property that is that heavily leveraged where the rent equals or exceeds the mortgage principal, interest, taxes, insurance and HOA fees.

Lenders, when we are talking about pre-payment, is that as in paying down the loan completely before the 5/4/3/2/1 period (zero balance), or any pre-payment (as in extra principal payments, monthly or periodically)?

they do ... on principal residences only.  ;-(  

Expectedly, lenders will qualify the borrower based on the principal and interest payments of the twenty year amortization at the qualified interest rate (usually prime plus 3-4%).