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What Are Basis Points? | Quicken Loans

How does base point work?

The base point is used to describe changes in the performance of various financial instruments. Since base points describe percentage change with a minimum of 0.01%, you can describe small or large changes in things like interest rates without having to do the mental exercises used to work with fractions or decimals.

To get a better idea of ​​how it works, see this conversion table.

base points

percentage

Decimal number

1

0.01%

0.0001

5

0.05%

0.0005

10

0.1%

0.001

50

0.5%

0.005

100

1%

0.01

1,000

10%

0.1

10000

100%

1

If you are looking to understand how small the base point is, it takes 100 of them to make up 1%. However, when you start talking in terms of dollars and cents, it can make all the difference. We’ll have an example of the effect a slight difference can have on your mortgage later.

How to calculate base point conversions

To better understand the way math works, let’s run some quick story questions. I know this reminds you of a math class. do not worry. This will not be in the test.

A home loan expert tells you that interest rates have increased by 10 basis points in the past two days. What is the percent difference?

To convert from base points to a percentage, you have to divide 10 by 100. If you don’t have a calculator, just move the decimal point twice to the left.

10

___ = 0.1%

100

Now let’s say you are following the stock market and you read that the stock market is up 0.5% during the week. What would that be in terms of key points?

In order 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 x 100 = 50

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