Basis pointsbp

A basis point is one hundredth of one percent. One percentage point equals 100 basis points, so a move from 6.50% to 6.75% is a rise of 25 basis points. Finance uses the unit because saying a rate went up by one percent is ambiguous: it could mean one percentage point or one percent of the existing rate.

1 basis point = 0.01%
100 basis points = 1.00%
6.50% → 6.75% = +25 bp

Small changes measured in basis points have outsized effects in housing because they are applied to very large loan balances over many years. In our illustrative building, a 100 basis point increase in the interest rate, from 6.5% to 7.5%, raises the rent needed to make the project work from $2,154 to $2,264 per month, all else held equal.

The same unit is used for cap rates and for the spread between a loan's rate and a benchmark. When you see a lender quote a rate as a benchmark plus a number of basis points, the number is the lender's margin for risk and profit.