Basis Point
A unit of measure equal to one-hundredth of a percentage point (0.01%) commonly used in real estate and finance to describe small changes in interest rates or yields. For example, 25 basis points equals 0.25% or one-quarter of a percent.
Example
“The Federal Reserve raised interest rates by 25 basis points, which increased mortgage rates from 6.50% to 6.75%.”
Memory Tip
Remember 'BPS = Big Percent Split' - one basis point is a big percent (1%) split into 100 tiny pieces.
Why It Matters
Basis points help borrowers understand precise mortgage rate changes, as even small rate adjustments can significantly impact monthly payments and total loan costs over time.
Common Misconception
People often confuse basis points with regular percentage points, thinking 25 basis points means 25% when it actually means 0.25%.
In Practice
When your lender says mortgage rates increased by 50 basis points this week, your rate went from perhaps 6.00% to 6.50%, which could add roughly $150 to your monthly payment on a $300,000 loan.
Etymology
Coined in financial markets from 'basis' (foundation for calculation) and 'point' (smallest unit), because traders needed a precise way to discuss tiny interest rate changes without confusion.
Common Misspellings
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