What Are Basis Points and Why Do They Matter in Mortgage Rates?

If you’ve ever felt like mortgage rates sound like financial jargon, especially when someone drops terms like “25 basis points,” you’re not alone. For many borrowers, the term "basis point" might as well be a secret code.

Here’s the good news: this guide will decode it. Whether you're a first-time homebuyer or refinancing your third property, understanding how basis points impact your mortgage can save you thousands of dollars.

One basis point = 0.01%. It’s a small number with a big impact.

• A basis point (bps) equals 0.01%. 100 bps = 1%.
• Basis points are commonly used to express mortgage rate changes.
• Even a 25-bps shift can mean significant cost differences over time.
• Understanding BPS helps borrowers compare offers more precisely.
• Always evaluate both rate and APR to get the full picture.

A basis point (often abbreviated as bps) is a unit of measure used in finance to describe the percentage change in interest rates or yields.

• 1 bps = 0.01%
• 100 bps = 1%

So if a lender says your mortgage rate improved by 25 basis points, it means your rate decreased by 0.25%, say, from 6.75% to 6.50%.

Mortgage professionals and loan officers use basis points because:

• It avoids confusion between 0.10% and 10%
• It gives a precise way to talk about small rate changes
• It aligns with how secondary markets and investors price loans.

Pro Tip: If you're comparing rate quotes from multiple lenders, a small change like 10 bps (0.10%) could mean hundreds or thousands in savings over the life of your loan.

Let’s say you’re borrowing $400,000 for a 30-year fixed mortgage.