What is the arrangement called that allows for reduced monthly payments by depositing money into an account?

The arrangement that allows for reduced monthly payments by depositing money into an account is known as an Interest Rate Buydown Plan. In this plan, the borrower pays an upfront fee, which is often held in an escrow account to temporarily lower the interest rate on the mortgage. The reduced interest rate results in lower monthly payments for a specified period, making homeownership more affordable during the early years of the loan.

In a typical buy-down, funds are used to "buy down" the interest rate, which can considerably lessen the monthly financial burden on the borrower. This strategy is often utilized by buyers who anticipate an increase in income over time or who expect to refinance before the end of the buy-down period.

Other arrangements, while related to managing payments, do not specifically operate in this way. A revolving credit agreement provides flexibility in borrowing but does not directly secure reduced monthly mortgage payments. A payment reduction plan is a more generic term that lacks the specific mechanics of an interest buy-down. Lastly, a subsidized loan arrangement typically involves government funding to reduce payments but operates under different structures, often related to specific loan programs rather than the mechanics of a buy-down.