Basis Point

Definition

• A basis point is a measurement of a percentage: 1/100th of one percent. For example, the difference between a 9.0% loan and a 9.5% loan is 50 basis points.

Notes
Used by mortgage brokers and lenders when discussing mortgage rates and determining commissions.

Synonyms
origination points, percentage, profit margin

Acronyms
BPS

Related Terms and Acronyms

• Basis — Definition,
  • Relating to cost basis, this is the amount assigned to an asset from which a taxpayer determines capital gain or loss. For assets purchased, the basis is the price paid. Special rules apply to assets acquired through gift or inheritance, as well as to the value of stock funds held for a period during which earnings are reinvested.
  • That on which a thing rests or is founded.
• Buy-down — Definition,
  • When a borrower or a mortgage broker "buys down" a mortgage rate, they make an upfront payment to the lender in order to lower the mortgage rate. A similar effect can be achieved by making a lump sum payment at the beginning of a mortgage term.
• Buy-down Mortgage — Definition, Important,
  • A home loan in which the lender charges below-market interest in exchange for discount points.
• Cash Method — Definition,
  • The form of accounting in which you report income in the actual year you receive it and deduct expenses in the year you pay. Most individuals use this method. Under this system, if you built a deck and billed the client in December 1999 but didn't receive the cheque until January 2000, it would be counted as 2000 income, not 1999.
• Commission (comm) — Abbreviation,
  • A fee paid to a salesperson for selling a product to a customer.
  • An agent's fee for negotiating a real estate or mortgage loan transaction, often expressed as a percentage of the selling price.
• Discount Point — Definition,
  • A sum a borrower pays to a lender to decrease the interest rate of a mortgage. A point equals 1 percent of the loan amount.
• Margin — Definition,
  • The difference between the cost and the selling price.
  • Expressed as percentage points, the amount that a lender adds to an index to arrive at the final interest rate. For example, if the index is 9 percent and the margin 2.75 percent, the final interest rate is 11.75 percent.
• Point — Definition,
  • A point equals 1 percent of a mortgage loan. Some lenders charge "origination points" to cover expenses of making a loan. Some borrowers pay "discount points" to reduce the loan's interest rate.