Quick Answer
Points on a construction loan are tricky because you pay interest-only on the amount drawn during the build, so a point that only trims the construction rate has little value. On a construction-to-permanent loan, apply the points to the permanent phase, where the rate reduction lasts for years. I time the points to where they actually save you money. Ask Patrick how points on construction loans would work for your loan.
During the construction phase, you pay interest only on the amount drawn, so points may not make financial sense during that period. On a Construction-to-Permanent loan (CTP), points can be applied to the permanent phase after construction ends, where they provide lasting rate reduction.
The money problem: you are paying interest on money you have not fully borrowed yet, so a point that only trims the construction rate buys almost nothing. The points earn their keep on the permanent mortgage, the loan you live with for decades.
Construction Phase
The term to know is interest-only draw: during the build, you pay interest only on the money actually drawn, and the balance grows as construction progresses. The meaning: the rate during construction is usually variable, tied to a benchmark plus a margin, and the balance is uncertain until the build finishes. The money part: paying points on this phase is unusual because the interest-only nature means the rate savings are small and the balance keeps changing. The real-world consequence: a point spent on the construction phase is mostly wasted money, because you are buying a rate reduction on a loan amount that does not exist yet.
Permanent Phase (CTP)
The term to know is construction-to-permanent, or CTP: one loan that starts as construction financing and converts to a standard mortgage when the build is complete. The meaning: at conversion you lock the permanent rate, and that is where points belong. The money part: the cost and savings math is the same as a standard purchase mortgage, one point is 1% of the final loan amount, and the rate reduction lasts for the life of the permanent loan. The real-world consequence: a point that trims the permanent rate saves you money every month for years, which is exactly why I tell buyers to time their point decision to the conversion, not the groundbreaking.
CTP Points Strategy
The strategy question is when to lock and buy. If you know you will keep the home long-term, paying points at conversion locks in a lower permanent rate, and the cost is based on the final loan amount. Some lenders let you lock the rate and buy points at application, which gives you certainty on both the rate and the point cost upfront, and that can be smart if you expect rates to rise while you build. The money part: the break-even math has to account for the timing gap, because you may pay for the points months before the permanent loan starts. The real-world consequence: buyers who skip the timing analysis either overpay for a construction-phase rate they barely use, or miss the chance to lock a permanent rate before it moves.
Ask Patrick about points on construction loans
Get a straight answer on points on construction loans and whether paying points makes sense for your loan.
