Basis Point
Definition and meaning of Basis Point in real estate.
A basis point is a financial unit of measure equal to one one-hundredth of one percent, or zero point zero one percent, used to describe changes in interest rates and financial yields.
In more detail
In mortgage lending and real estate finance, interest rate movements are frequently discussed in basis points to avoid confusion with fractional percentages. For example, if a mortgage rate increases from six percent to six point two five percent, it has risen by 25 basis points. Financial professionals also use this unit to measure loan origination fees, bond yields, and index rate adjustments.
Understanding basis points helps buyers compare loan estimates and evaluate how small rate changes impact their long-term borrowing costs.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Value | 0.01 percent or 1/100th of 1% |
| Used by | Lenders, underwriters, bond traders, and financial analysts |
| Common abbreviation | bp or bps |
A lender offers a buyer a mortgage rate that is a few basis points lower than the standard rate if the buyer pays an upfront fee to buy down the rate.
Frequently asked questions
How many basis points are in one percentage point?
There are exactly 100 basis points in one percentage point. Therefore, a rate change of 0.50 percent is equivalent to a change of 50 basis points.
Why do lenders use basis points instead of percentages?
Lenders use basis points to ensure clarity. Stating that a rate rose by one percent could mean a rise from 5% to 6%, or a relative increase of one percent of the rate itself. Saying 100 basis points eliminates this ambiguity.