What financing arrangement allows a buyer to significantly reduce their interest cost using upfront funds?

A buydown is a financing arrangement where the buyer pays an upfront sum to reduce the interest rate on their mortgage for a certain period or for the life of the loan. This upfront payment essentially "buys down" the interest rate, resulting in lower monthly payments and significant savings on interest costs over time.

In this arrangement, the buyer can ideally secure a lower interest rate, which not only makes the monthly payments more affordable but also results in substantial interest cost reductions throughout the duration of the loan. This is particularly beneficial when interest rates are high, as it allows buyers to save money while using some of their available funds to enhance their financing terms.

In contrast, other options like a package mortgage, adjustable-rate mortgage, and fixed mortgage do not provide the same upfront cost reduction mechanism. A package mortgage typically includes additional elements beyond just the loan, an adjustable-rate mortgage may have fluctuating rates over time, and a fixed mortgage locks in a rate but does not involve any upfront funds to lower the interest rate. Each of these alternatives serves different purposes and may not provide the same level of immediate savings on interest costs as a buydown does.