Which financing technique is used to reduce the monthly payments for the first few years of a loan?

The correct choice is a buydown, which is a financing technique used to lower the monthly mortgage payments for the initial years of a loan by prepaying a portion of the interest upfront. In a buydown arrangement, funds are applied to reduce the interest rate on the loan for a predetermined period, typically for the first few years. This results in lower payments, making homeownership more affordable for borrowers during those initial years when they may be more financially constrained.

In contrast, a subsidized loan often involves government assistance to help borrowers qualify for a mortgage or reduce their payments, but it does not specifically reference the structure that lowers payments over a defined period like a buydown does. An adjustable-rate mortgage (ARM) involves interest rates that adjust over time, which may lead to varying payments that could be higher after the initial fixed-rate period. A fixed-rate loan maintains the same interest rate and consistent payments throughout the life of the loan, without the initial reduction feature that a buydown provides.