Construction Loan - Origination Points

[gcmathy]

I paid a significant amount in origination fees/points in Oct 2025 as part of obtaining a six-month construction loan for my new home, living in another mortgaged residence during the construction. The construction loan will not automatically morph into permanent financing, and I will have to pay off that construction loan with a permanent mortgage solution at the end of the construction process, or simply pay off the construction loan with cash. Because the origination points are related to a second home, they should theoretically be amortized over the life of the loan. In this case, is the life of the loan only considered to be six months for this purpose? As such, do I deduct 50% of the points in 2025 because the loan was outstanding for three out of the total of six months during that year, with the remainder written off in 2026? Or, am I somehow stuck amortizing it over the life of the permanent loan (30 years) that will be used to refinance the construction loan? That result seems harsh, as the construction loan is not directly tied to the permanent loan, as I could decide to simply pay off the construction loan with access cash. Thanks.

[PatriciaV]

If the construction loan was secured by your new home, you would amortize those points over the life of the loan. In your case, allocate the points over six months and deduct the portion that applies to each tax year.

If you take out a new mortgage to pay off that loan (also secured by the home), you are essentially refinancing the construction loan. If you refinance with a different bank than the one holding the construction loan (or pay it off with cash), you can deduct your remaining points on the construction loan when you pay it off.  

However, if you refinance with the same bank, you must roll those points into the new loan and start the clock all over again.