Basis Point

A basis point (BPS) is a unit of measure that is equivalent to 1/100th of 1%. Written as a decimal, a BPS would be 0.0001. Basis points are used to represent the percentage change of financial instruments such as the change in interest rates in stock prices or the yield a bond pays. In real estate, basis points describe a difference in mortgage and loan interest rates. If a loan rate is at 6.49% and a mortgage is at 7.04%, the difference is described as 55 basis points. A 6.49% loan and a 6.50% mortgage would be 1 basis point. The use of basis points to describe percentage differences provides a more manageable, highly accurate figure to define very small absolute numbers. They also provide a useful nomenclature that is easily translatable to all members across the financial sector, increasing the accuracy of communication.