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.
Construction Phase
During construction, you pay interest only on funds drawn. The rate during construction is typically variable and tied to prime or SOFR plus a margin. Paying points on this phase is unusual because the balance is uncertain and the interest-only nature means rate savings are small.
Permanent Phase (CTP)
A Construction-to-Permanent loan converts to a standard mortgage once construction is complete. At conversion, you lock the permanent rate. Points can be paid at conversion to reduce the permanent rate. This is where points make the most sense. The cost and savings math is the same as a standard purchase mortgage.
CTP Points Strategy
If you know you will keep the home long-term, consider paying points at the conversion to lock in a lower permanent rate. The cost is based on the final loan amount. Some lenders allow you to lock the rate and buy points at application, giving you certainty on both the rate and the point cost upfront.