Rate and pricing unit equal to one one-hundredth of a percentage point.
A basis point, abbreviated bp for one or bps for more than one, equals one one-hundredth of a percentage point.
Mortgage rates and loan prices often move in increments too small to describe conveniently as full percentage points. Basis points provide an exact unit:
The phrase prevents an important ambiguity. If a rate rises from 6.25% to 6.50%, it increased by 25 basis points or 0.25 percentage point. Saying it rose by 0.25% can be misunderstood as a relative percentage change rather than a percentage-point change.
Borrowers may hear basis-point language during:
The borrower should ask whether the speaker means a change in the interest rate or a change in the loan price. Both can be measured in basis points, but they produce different borrower-facing results.
| Basis points | Percentage-point change | Example rate movement |
|---|---|---|
| 1 bp | 0.01 | 6.25% to 6.26% |
| 10 bps | 0.10 | 6.25% to 6.35% |
| 12.5 bps | 0.125 | 6.25% to 6.375% |
| 25 bps | 0.25 | 6.25% to 6.50% |
| 50 bps | 0.50 | 6.25% to 6.75% |
| 100 bps | 1.00 | 6.25% to 7.25% |
To convert basis points to percentage points, divide by 100. To convert a percentage-point change to basis points, multiply by 100.
| Usage | Meaning | Example |
|---|---|---|
| Rate changed by 25 bps | Note-rate option moved by 0.25 percentage point | 6.25% becomes 6.50% |
| Price changed by 25 bps | Loan price moved by 0.25% of the loan amount | 0.25% of $300,000 is $750 |
A 25-basis-point worsening in loan price does not automatically mean the mortgage rate rises by 0.25 percentage point. Rate sheets contain separate rate-and-price combinations, and the lender determines how a price change affects points, credits, or available rates.
Basis points make the rate movement precise, but borrowers still need the payment effect. On a $400,000, 30-year fixed-rate mortgage, a simplified principal-and-interest comparison is:
| Note rate | Rate change | Approximate monthly principal and interest |
|---|---|---|
| 6.250% | Starting quote | $2,462.87 |
| 6.375% | 12.5 bps higher | $2,495.48 |
| 6.500% | 25 bps higher | $2,528.27 |
The 25-basis-point rate increase raises this example payment by about $65.40 per month. The effect differs with the loan amount and remaining term, so a basis-point headline should be translated using the borrower’s actual scenario.
For price basis points, translate the change to upfront dollars instead. Twenty-five basis points of price equals 0.25% of the loan amount, or $1,000 on $400,000. It may appear through points, credits, or rate-sheet pricing rather than as the same monthly-payment change shown above.
A borrower is considering a $300,000 fixed-rate mortgage. Before the borrower locks, the quoted rate moves from 6.375% to 6.50%. That is a 12.5-basis-point increase in rate.
In a separate conversation, the loan officer says a scenario adjustment costs 50 basis points in price. That means 0.50% of the loan amount, or $1,500 on $300,000. The lender may reflect that price effect through more points, fewer credits, a different rate, or a combination; it is not necessarily a $1,500 line item on the Closing Disclosure.
Basis point differs from Mortgage Points. A basis point is one-hundredth of a percentage point. One mortgage point generally equals 1% of the loan amount, so one point equals 100 basis points of price.
It differs from Interest Rate because the interest rate is the percentage charged on principal; a basis point is a unit used to describe a small rate change.
It differs from Price in Points because price in points expresses the cost or credit attached to a rate option. Basis points are the smaller measurement units used inside rate or price discussions.
It differs from Discount Points. Discount points are a borrower-paid finance charge connected to obtaining a lower rate, not merely a unit of measurement.