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A basis point (often written “bps”) is one one-hundredth of one percentage point — 0.01% — the standard unit lenders, brokers, and the Bank of Canada use to describe small, precise changes in interest rates.
Rate moves in mortgage lending are often small enough that describing them in plain percentages gets confusing — saying a rate is “up 25%” could mean a relative change or an absolute one. Basis points remove that ambiguity: a move of 25 basis points always means exactly 0.25 percentage points, regardless of the starting rate.
Brokers see basis points everywhere in the day-to-day of the job: the Bank of Canada's policy rate announcements are described in basis points, lender rate sheets move in 5- or 10-bps increments, and an interest rate differential penalty is often quoted as a bps spread between the original and current rate.
1 basis point = 0.01% | 100 basis points = 1%
Used in Bank of Canada announcements: policy rate changes are described in basis points (for example, a “25 bps cut”), which brokers translate into expected movement in prime rate.
Standard unit on lender rate sheets: discounts, surcharges, and promotional pricing are typically quoted in basis points relative to a lender's posted or par rate.
Used to describe penalty spreads: an interest rate differential penalty calculation often references the basis-point gap between a client's contract rate and the lender's current comparable posted rate.
Compensation and bond yields too: broker compensation structures and bond yield spreads that drive fixed-rate pricing are both commonly discussed in basis points.
The Bank of Canada lowers its policy rate by 25 basis points:
25 basis points = 0.25 percentage points, so 2.75% − 0.25% = 2.50%.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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