What is the best description of a 2-1 loan?

A 2-1 loan is effectively a buydown loan where the borrower’s interest rate is temporarily reduced for the first two years of the loan term. In this situation, the interest rate is lowered by 2% in the first year and by 1% in the second year, returning to the original interest rate set for the remainder of the loan. This structure helps borrowers manage their initial payment burdens, making homeownership more accessible as they ease into the full payment over time.

Understanding this concept is essential as it emphasizes how temporary adjustments in loan terms can facilitate a homeowner's financial planning during the initial years of a mortgage. The other options, such as an adjustable-rate mortgage, growing equity mortgage, or reverse mortgage, do not align with the characteristics of a 2-1 loan, which specifically involves a defined temporary reduction in interest payments.