March 25th, 2018 10:48 PM by Jackie A. Graves
You probably won’t get very far in your
mortgage learning process without hearing the term “basis point,” so let’s take
a look at what this term means and why it matters on your mortgage.
Just Industry Jargon
A basis point is a mortgage (and overall
financial services industry) term to describe differences and changes in
One basis point is one one-hundredth of a
percent, or 0.01 percent.
Therefore one hundred basis points is one
So if you got a mortgage rate
quote of four percent one week and it changed to 4.25 percent
the next week that means it rose by 25 basis points.
The abbreviation for plural usage “basis
points” is bps (pronounced “bips”), so in the example above you could say your
quote rose by 25 bps.
Why So Precise?
Why is there a need to look at rates all the
way down to hundredths of a percentage point? The short answer is that every
penny counts when you’re talking about a large loan like a mortgage.
To illustrate the point, let’s take a closer
look at the two different forms in which rate quotes are delivered:
Quick Reference Jargon
Because rate quotes mostly move in
increments of one-eighth, here is a quick reference to translate eighths
to basis points, so you can easily translate any industry jargon you hear.
Two eighths (or one quarter)
Four eighths (or one half)
Six eighths (or three quarters)
Eight eighths (or one)
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