Construction loan points are fees charged by lenders at closing, expressed as a percentage of the loan amount. How and when those fees are paid can significantly affect a borrower’s upfront cash requirements and overall project cash flow. AHL offers both a 0 point option and a deferred point option, giving investors flexibility in how they structure their costs.
What Are Construction Loan Points #
One point equals one percent of the loan amount. For example, on a $500,000 loan, one point equals $5,000. Points are a standard component of hard money lending and represent a portion of the lender’s origination compensation. In addition to the interest rate, points affect the total cost of the loan.
What a 0 Point Option Means #
A 0 point option means the borrower pays no origination points at closing or at exit of the loan. This lowers the upfront cost of the loan and preserves cash for construction. However, lenders that offer 0 points typically account for that difference in other ways, such as a slightly higher interest rate or adjusted fee structure. The key benefit is that less cash is needed at closing, which can be particularly helpful for investors managing tight project budgets.
What a Deferred Point Option Means #
A deferred point option allows the borrower to pay origination points at the exit of the loan rather than at closing. This structure keeps the interest rate lower during the build, which can help reduce carrying costs throughout the project. However, deferring points typically comes at a premium. For example, a loan that carries 2 points paid upfront might carry 2.5 points if deferred. Consequently, the total cost of borrowing is higher with this option, but the tradeoff is improved cash flow during construction.
How to Choose Between the Two #
The right choice depends on the investor’s cash position, project timeline, and total cost of borrowing. A 0 point option tends to be more favorable for shorter projects because the higher interest rate has less time to accrue, keeping overall borrowing costs in check. A deferred point option can make sense when preserving cash at closing is the priority, but investors should account for the point premium at payoff.
For longer projects, the combination of a higher point cost at exit and extended interest accrual can add up. Modeling the total cost of each option against your projected timeline is the most reliable way to determine which structure fits your deal.
AHL’s Point Options #
AHL offers both a 0 point option and a deferred point option on new construction loans. Both are available depending on the structure of the deal. Investors can discuss which option fits their project during the loan scenario review.
Summary #
Construction loan points represent an origination fee that affects the upfront cost of the loan. A 0 point option eliminates this fee at closing, reducing cash out of pocket. A deferred point option allows the fee to be paid later, preserving capital during the construction phase. AHL makes both available, giving investors the flexibility to choose the structure that best fits their cash flow needs and project budget.