Where was the prepayment penalty mentioned? Did it apply longer than the period of fixed interest?
Yep, three years. They'll have to suck it up for a year.
Yes, it was one year longer than the fixed period.
The interest rate is better in such scenarios, but as you see it's not always rosy to do that. Of course it depends-on an $80,000 loan with a 1% prepay penalty, that's $800-hardly enough to inhibit refinancing, but theirs was 3% on a much larger loan.