Basis Point

Basis Point — a unit of measure equal to 1/100th of one percent, so 100 basis points equals 1%. Lenders, servicers, and note investors use basis points to communicate precise changes in interest rates, servicing fees, and yield spreads without the ambiguity that can arise from percentage language. For example, saying a note's rate increased by 50 basis points is clearer than saying it went up "half a percent."

In the secondary mortgage note market, basis points frequently appear when quoting servicing fee strips, describing the spread between a note's coupon rate and an investor's target yield, or comparing pricing across a tape of notes. Understanding basis points helps investors evaluate whether small rate differences meaningfully affect returns over the life of a loan.