What type of loan reduces monthly payments through a temporary buy-down of the interest rate?

The type of loan that reduces monthly payments through a temporary buy-down of the interest rate is indeed the Interest Rate Buydown Plan. This financing strategy involves lowering the interest rate on a mortgage for an initial period, resulting in reduced monthly payments during that timeframe. For example, a borrower might pay less in the early years of the loan, making homeownership more affordable at the outset. This reduction in the interest rate is usually funded by the seller or builder, providing an incentive for the buyer.

In this context, the other options do not specifically address the mechanism of a temporary buy-down. Fixed Rate Mortgages maintain the same interest rate throughout the life of the loan, meaning monthly payments stay consistent and do not decrease initially. Conventional Loans refer to mortgage types that are not insured or guaranteed by the government, which can include various structures but do not inherently involve a buy-down. Graduated Payment Mortgages, while they do feature increasing payments over time, do not operate on a temporary reduction of the interest rate but rather on a planned increase in payments.

Overall, the Interest Rate Buydown Plan distinctly facilitates this temporary reduction strategy, making it the correct answer to the question.