This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.
What a basis point is
A basis point (bp, often said “bip”) is one hundredth of a percentage point: 1 bp = 0.01% = 0.0001. So 25 bps is 0.25%, 50 bps is 0.5% and 100 bps is 1%.
Finance uses basis points to avoid confusion. If a rate goes from 5% to 5.5%, saying it rose “by 0.5%” could mean half a percentage point or 0.5% of 5%, which would be 5.025%. Saying it rose 50 basis points is clear.
Where you see them
- Central banks: the Federal Reserve usually moves its target range by 25 bps at a time, sometimes 50 or 75.
- Mortgages and loans: lenders quote rate changes and fees in basis points.
- Bonds: yield spreads, such as the gap between a corporate bond and a Treasury bond, are given in basis points.
- Fund fees: an expense ratio of 0.03% is 3 bps.
Example
On a $400,000 mortgage over 30 years at 6.5%, the monthly principal and interest payment is about $2,528. A rise of 25 bps to 6.75% raises it to about $2,594, or $66 more per month. Over the full term, that is about $23,800 of extra interest.
A useful shortcut: in the first year, each basis point on a loan balance costs about balance × 0.0001 per year. For $400,000, 25 bps is about $1,000 a year of interest.
How to use the result
- Rate locks: if rates may rise before closing, compare the cost of a lock fee with the cost of a 25 or 50 bps increase.
- Refinancing: a cut of 50 to 100 bps can make refinancing worthwhile if you keep the loan long enough to recover closing costs.
- Mortgage points: one discount point costs 1% of the loan and typically lowers the rate by about 25 bps, depending on the lender.
Limits
The calculation assumes a fixed rate, monthly payments and no extra payments. Taxes, insurance and mortgage insurance are not included. For an adjustable-rate loan, a change applies only from the next reset date.