Basis Point

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Basis Point

A basis point (BPS) is 1/100th of 1.00%. For example, 35 basis points would be equivalent to 0.35%.

Investment professionals regularly refer to “basis points” when discussing things like bond yields and mutual funds. Basis points can add up to a lot of money for both individual investors and institutions.

When people compare fund expenses, they measure the difference in basis points. A fund with expenses of 0.45% is said to be five basis points more expensive than one with a 0.40% ratio. That difference in expenses might seem small, but on a $1,000,000 loan, it can add up to thousands of dollars in extra interest paid over the loan term.

For a commercial real estate loan transaction, most mortgage brokers charge a “a point” to close the loan. “A Point” in commercial real estate terms is = 100 basis points. So if the broker closed a $2,000,000 loan for an owner and they agreed on “a point” then he’d be expecting a fee of $20,000.

It’s a bit confusing but nothing in commercial real estate is easy after all.

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