Paying Points on a Construction Loan: Upfront, Deferred or Built Into the Rate

Points are an origination fee on a construction loan, where one point equals 1% of the loan amount. Lenders may let you pay them at closing, push them to payoff, or reduce them in exchange for a higher interest rate. The cheapest choice depends on how long the loan will be outstanding and how tight your cash is at closing.

What a point actually costs

Points are part of what the lender earns for making the loan, along with interest and any other fees. On a construction loan, points are usually calculated on the full loan commitment, not just the amount drawn so far. That matters, because your interest is often charged only on the drawn balance, while points hit the whole loan.

The three common setups

• Paid at closing: you bring the points as cash at closing. This is the most common structure and often comes with the lowest rate.
• Deferred to payoff: the points are added to what you owe and paid when you sell or refinance. That protects cash at closing, but deferred points sometimes cost more in total.
• Lower or no points, higher rate: the lender reduces points and makes it back through interest. Less cash up front, but each month costs more.

Which options are available, and how they are priced, varies by lender and by deal. At RSC Private Lending, final pricing depends on experience, credit, leverage and location.

How to compare them

Add up total borrowing cost over your expected timeline, not just the cash at closing. Shorter projects tend to favor fewer points with a slightly higher rate, because the higher rate has less time to add up. Longer projects tend to favor paying points to get a lower rate. If cash at closing is your tightest constraint, deferring may be worth paying more overall.

Example

Example (illustrative numbers only): A $450,000 construction loan with an average drawn balance of $270,000.

• Option A: 2 points at closing ($9,000) and an 11% rate. Over 10 months, interest is about $24,750. Total about $33,750.
• Option B: no points and a 12% rate. Over 10 months, interest is about $27,000. Total about $27,000.
• Stretch both to 20 months and Option A totals about $58,500, while Option B totals about $54,000.

In this made-up case, the no-point option still wins, but the gap narrows as the project runs longer. Change the rates or the drawn balance, and the answer can flip.

What this means for you

Ask your lender for every point option side by side, then run total cost at your expected timeline and at a timeline three to six months longer. Pick the one that still works if the build runs late.

Want real numbers to compare on your build? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.