Basis Points
A basis point is a unit of measurement equal to one-hundredth of one percent (0.01%). In mortgage lending, basis points are used to express changes in interest rates, pricing adjustments, and compensation structures.
For example, if your interest rate moves from 6.50% to 6.75%, that is a 25 basis point increase. Lenders, investors, and loan officers use basis points to communicate precise changes in pricing without ambiguity.
On a $250,000 loan, a 25 basis point difference in rate can mean roughly $40 per month — or over $14,000 in total interest over 30 years. That is why even small changes in basis points deserve your attention when comparing loan offers.
Why This Matters: Small changes in basis points can have a significant impact on your monthly payment and total loan cost. Understanding this unit of measurement helps you evaluate rate quotes and discount point pricing with clarity.
Common question
What is one basis point?
One basis point equals 0.01%, or one-hundredth of one percent. A 25 basis point rate change means 0.25%.
Why do lenders use basis points?
Basis points allow precise communication about rate and pricing changes without ambiguity. Saying "25 bps" is clearer than "a quarter of a percent" in formal pricing.
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