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

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.

A 25 bps difference = $66/month in savings, or nearly $24,000 over the loan term.

Many borrowers confuse the interest rate with the APR (Annual Percentage Rate). Here’s the difference:

• Interest Rate is the cost to borrow the principal.
• APR includes fees, points, and other costs.

A loan with a slightly higher interest rate but lower fees might offer a better APR. Use basis points to compare both to ensure you're not overpaying.

• Rate Shopping: Comparing lenders’ quotes.
• Refinancing: Determining if rate drops justify closing costs.
• Rate Locks: Even small movements in market rates can shift pricing.
• Discount Points: Buying down your rate involves BPS math.

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You don’t need to be a finance pro to master mortgage math. By understanding how basis points work and how they affect rates, fees, and long-term costs, you’re better equipped to shop smart, negotiate well, and save more. Bottom line: Even a 0.10% shift in rates can be the difference between a good deal and a great one.

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When you work with reAlpha, you can unlock up to 75% of your buyer agent’s commission back - that’s real cash back at closing.

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No, they’re used across finance, stocks, bonds, Treasury yields, but in mortgages, they help communicate precise rate changes.

Absolutely. Even 0.10% can save you thousands, depending on your loan size and term.

One discount point = 100 bps, or 1% of the loan amount. This usually reduces your rate by about 25 bps.

APR gives a fuller picture because it includes fees. Compare both using BPS as your guide.

Yes, especially on closing costs and discount points. Always ask for a detailed cost breakdown.

• reAlpha Mortgage is a licensed lender (NMLS #1743790) offering mortgage products and buyer commission rebates.
• reAlpha is a homebuying platform that helps you save money by unlocking up to 75% of your buyer agent's commission.
• Mortgage rates and APRs vary based on market conditions and borrower profiles. Always consult a licensed mortgage professional before making financial decisions.
• This content is for informational purposes only and subject to change without notice. Rate and cost comparisons are hypothetical and for illustrative purposes only.

Find the Perfect Mortgage for Your Dream Home with reAlpha Mortgage.

Compare options, calculate payments, and get expert guidance - all in one place.

Check if you qualify