What are basis points? | Quicken Loans
How does a base stitch work?
A basis point is used to describe changes in the performance of various financial instruments. Since basis points describe a percentage change as small as 0.01%, you can describe small or large changes in things like interest rates without the need for the mental gymnastics used to process fractions or the decimals.
To get a better idea of how they work, check out this conversion table.
Base points |
Percentage |
Decimal |
1 |
0.01% |
0.0001 |
5 |
0.05% |
0.0005 |
ten |
0.1% |
0.001 |
50 |
0.5% |
0.005 |
100 |
1% |
0.01 |
1000 |
ten% |
0.1 |
10,000 |
100% |
1 |
If you are looking to understand how small a base point is, it takes 100 to represent 1%. However, when you start talking in terms of dollars and cents, those can make a big difference. We’ll have an example of the impact that even a small difference can have on your mortgage later.
How to calculate basis point conversions
To better understand how math works, let’s go over some quick story problems. I know it reminds you of math class. Do not worry. It won’t be on the test.
Your mortgage expert tells you that interest rates have increased by 10 basis points in the past 2 days. What is the percentage difference?
To convert basis points to a percentage, you divide 10 by 100. If you don’t have a calculator, just move the decimal two decimal places to the left.
ten
___ = 0.1%
100
Now suppose you are following the stock market and read that the stock market is up 0.5% on the week. What would that be in terms of basis points?
To arrive at the answer, you multiply 0.5 by 100. You can also move the decimal point two places to the right.
0.5 × 100 = 50