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%).

So essentially depending on your timing you will need (2) things in your favor to do that lower rates, and enough equity.In some cases having an interest only rate is not a good thing because it can and it does create comfort which can lead to bad habits of not paying the principal down.

Coming from the buy and hold side of investing, I'm very focused on cash flow, cash on cash, and then looking at the other ways that I value a deal (appreciation, principal paydown, etc.).  

There is no mention of the loan balance, just the rate and payment (I did the math on $513 / mo - if it's principal and interest only the loan balance would be $92,900 - so I suspect you're quoting a PITI payment).